consolidated financial statements 1997 · management’s discussion and analysis 2 general...

1997ConsolidatedFinancialStatementsof theUnited StatesGovernment

Contents

A Message from the Secretary of the Treasury 1Management’s Discussion and Analy sis 2

General Accounting Office ReportActing Comptroller General’s Statement 13General Accounting Office Report 14

Consolidated Financial StatementsBalance Sheet 30Statement of Net Cost 32Statement of Changes in Net Position 40

Notes to the Financial StatementsNote 1 - Summary of significant accounting policies 43Note 2 - Cash and other monetary assets 45Note 3 - Loans receivable and loan guarantee liabilities 46Note 4 - Taxes receivable 47Note 5 - Inventories and related property 47Note 6 - Property, plant, and equipment 48Note 7 - Other assets 48Note 8 - Accounts payable 49Note 9 - Federal debt securities held by the public 49Note 10 - Federal employee and veteran benefits payable 51Note 11 - Environmental liabilities 54Note 12 - Benefits due and payable 54Note 13 - Other liabilities 55Note 14 - Commitments and contingencies 55Note 15 - Unreconciled transactions affecting the change in net position 57Note 16 - Dedicated collections 57Note 17 - Fiduciary trust funds 59

Stewardship Reporting (Unaudited)Stewardship land 61Stewardship responsibilities:

Social Security 63Medicare 64

Supplemental Table (Unaudited)Reconciliation of the Changes in Net Position

to the Deficit on the Budgetary Basis 65

AppendixList of significant U.S. Government entities included

and entities excluded from the consolidated financial statements 66

A MESSAGE FROM THE SECRETARYOF THE TREASURY

I am pleased to present the fiscal year 1997 Consolidated Financial Statementsof the United States Government — a truly historic undertaking. Never before hasthe United States Government attempted to assemble comprehensive financialstatements covering all of its myriad activities and to subject those financialstatements to an audit. I am confident that in future years, as the data used toprepare these financial statements continue to improve, these financial statementswill prove to be an important management tool for policy-makers and the public.

The publication of these audited financial statements represents yet another stagein the Clinton Administration’s continuing efforts to improve the management andefficiency of the United States Government. In 1994, the Administration stronglysupported the Government Management Reform Act, which mandated the issuanceof the audited financial statements which follow. The Administration has workedthrough the Federal Accounting Standards Advisory Board to create the accountingstandards that form the basis for these financial statements.

Despite the substantial progress that has been made, however, furtherimprovements are clearly necessary. The audit report from the General AccountingOffice (GAO) discusses many areas in which the reliability of the current financialstatements must be enhanced and improved. As a result, the GAO was unable torender an opinion on these statements. The Administration is therefore committedto working with the GAO, Federal agencies, and other interested parties to achievethe President’s goal of receiving an unqualified opinion from the GAO on the FY1999 Consolidated Financial Statements. We believe that the publication of theseaudited statements is an important step in providing American citizens with moreinformation about the operations of their government.

Robert E. Rubin

Consolidated Financial Statements of the United States Government, Fiscal 1997

No other entity in the world com-pares in size and scope to the U.S. Gov-ernment, which has continuingresponsibilities for the general welfareof its citizens and for national defenseYet, to this date, the U.S. Governmenthas never set forth a comprehensivestatement of its finances in accordancewith applicable accounting standards.This document is the U.S. Govern-ment’s first preparation, in accordancewith new Federal accounting standards,of comprehensive financial statementsthat include all of its vast and complexactivities and that subject those financialstatements to the rigors of an audit. Weare pleased that these financial state-ments have been produced and sub-jected to audit on a timely basis withinthe relevant statutory guidelines.

For over 200 y ears, effective manage-ment of the U.S. Government has suf-fered from a lack of comprehensivefinancial information. The Administra-tion is committed to addressing thisshortcoming. In 1994, the Administra-tion strongly supported the Govern-ment Management Reform Act, whichmandated the issu-ance of annualaudited financialstatements for the24 largest agenciesand for the Govern-ment as a whole. Toprovide a sound ba-sis for these financial statements, the Ad-ministration and the General Account-ing Office (GAO) have worked throughthe Federal Accounting Standards Advi-sory Board (FASAB) to create the ac-counting standards that form the basisfor these statements.

The Administration appreciates thecooperation and assistance of the GAOin auditing these financial statements ina timely manner, and looks forward toworking with the GAO, Federal agen-cies, and other interested parties to con-tinue improving the reliability of thefinancial information upon which thestatements are based. The effort to pro-

vide a comprehensive and reliable set offinancial statements for the U.S. Gov-ernment, which began in 1997, is ongo-ing and improvements are clearlynecessary. Because of current data limita-tions, the GAO is not able to render anopinion on the reliability of these finan-cial statements. The Administration iscommitted to improving the reliabilityof the financial information so that theU.S. Government can achieve the Presi-dent’s goal, as stated in the fiscal 1999Budget, of receiving an unqualified opin-ion from the GAO on the fiscal 1999Consolidated Financial Statements. Inaddition, the Administration’s objec-tives for individual agencies are re-flected in the Federal FinancialManagement Status Report and Five-Year Plan issued by the Office of Man-agement and Budget. That documentsets forth the dates by which agencieshave pledged to submit timely financialstatements with unqualified audit opin-ions.

The ongoing challenges involved inobtaining reliable financial informationshould not, however, obscure the pro-

gress that has beenmade or the poten-tial insights pro-vided bypreparation andaudit of these state-ments. The Admini-stration remains

committed to providing the President,the Congress, and the American peoplewith reliable information about the fi-nancial position of the U.S. Govern-ment on an accrual basis — includingthe cost of its operations and the financ-ing sources used to fund these opera-tions. Such information will ultimatelyprove extremely helpful to policy-mak-ers and the public.

It is worth emphasizing that the U.S.Government does not have a single bot-tom line that reflects its financial status.Its operations and scope are much toocomplicated to be summarized in anysingle number. But the information in-

“No other entity in theworld compares in sizeand scope to the U.S.

Government.”

Consolidated Financial Statements of the United States Government, Fiscal 1997Management’s Discussion and Analysis:Introduction

2 Discussion and Analysis


cluded in these statements provides aview of the Government’s finances thathas not previously been presented in acomprehensive form.

The accompanying financial state-ments are required by 31 U.S.C. 33(e)(1) and consist of Management’s Dis-cussion and Analysis (MD&A), a Bal-

ance Sheet, a Statement of Net Cost, aStatement of Changes in Net Position,Notes to the Financial Statements, andSupplementary Information, which in-cludes a stewardship section. Each sec-tion of these financial statements ispreceded by a description of the sec-tion’s contents.

Management’s Discussion and AnalysisThis section explains the basis of ac-

counting used to prepare the statementsand presents selected financial and eco-nomic information intended to assistreaders in their assessment of the U.S.Government’s financial status. It alsosummarizes financial management initia-tives designed to continue improvingthe reliability of the financial statementsand to address the issues identified inGAO’s report on these financial state-ments.

Reporting entity and basis of accounting

Coverage

The financial statements cover the ex-ecutive branch, as well as parts of thelegislative and judicial branches of theU.S. Government. Information fromthe legislative and judicial branches islimited because those entities are not re-quired to prepare comprehensive finan-cial statements. For example, theproperty, plant and equipment of the ju-dicial branch and the Congress are notreflected in these statements. In addi-tion, government-sponsored enterprises(such as Federal Home Loan Banks andthe Federal National Mortgage Associa-tion) are excluded because they are pri-vately owned. The Federal ReserveSystem is also excluded because mone-tary policy is conducted separately fromand independently of the other centralGovernment functions. The narrative as-sociated with the Statement of Net Costdescribes the major functions of theU.S. Government.

Accounting standards

In 1994, C ongress passed and thePresident signed the Government Man-agement Reform Act, which requiredthe preparation and audit of financialstatements. At that time, the U.S. Gov-

ernment did not have a comprehensiveset of generally accepted accountingstandards. The three principals con-cerned with overall financial manage-ment in the U.S. Government (theSecretary of the Treasury, the Directorof OMB, and the Comptroller General)created the FASAB to address this void.Just as the effort to improve the reliabil-ity of the financial statements is ongo-ing, the effort to produce andimplement a comprehensive set of ac-counting principles is also ongoing:FASAB completed work on the basicset of Federal financial accounting stand-ards (FFAS) in 1996, but some of thestandards will not become effective un-til fiscal y ears 1998 and 1999.

The accounting standards developedby FASAB are tailored to the FederalGovernment’s unique characteristics

and special needs. For example, the U.S.Government needs financial informa-tion that is useful in planning futurebudgets and in controlling budgetary ex-penditures. Consequently net costs,rather than profit, are used as the pri-mary financial measure for assessing effi-ciency and effectiveness of Governmentoperations.

The Consolidated Financial State-ments of the U. S. Government are gen-

“The Administrationremains committed to

providing the President,the Congress, and theAmerican people withreliable informationabout the financialposition of the U.S.

Government.”

Discussion and Analysis 3


erally prepared in accordance with appli-cable FFAS. The statements are on theaccrual basis unless otherwise noted.Thus transactions are recorded in the ac-counting records when the events giv-

ing rise to the transactions occur, ratherthan when cash is received or paid. Bycontrast, the Federal budget is generallybased on budgetary concepts and poli-cies adopted by the Congress and the Ex-ecutive branch, which are generally onthe cash basis.

The most significant difference be-tween FFAS and budgetary measures in-volves timing and other differencesbetween the recognition and measure-ment of revenues and costs. For exam-ple, accounting standards requirerecognition of liabilities for costs relatedto environmental clean-up when theevents resulting in such costs occur. Bycontrast, only the amounts expendedcurrently are included as outlay s in thebudget. The effects of these differencesare reflected in the “Reconciliation ofthe Changes in Net Position to the Defi-cit on the Budgetary Basis,” which ispresented in the supplementary sectionof these financial statements.

These financial statements do not in-clude information on natural resources(depletable resources, such as mineral de-posits and petroleum or renewable re-sources, such as timber) becausestandards have not yet been recom-mended for recognizing and measuringthese assets. Nor are values for steward-ship land (land not used in Governmentoperations) included in these financialstatements — information about thecomposition and quantity of such landis, however, reported in the stewardshipsection in accordance with FFAS.

Finally, a comprehensive assessmentof the Government’s financial statusshould recognize the Government’s sov-

ereign powers to raise revenue and regu-late commerce. These powers are not re-flected in the following statements, butshould be considered in a comprehen-sive assessment of the Government’s fi-nancial condition.

Future changesAs noted above, the process of im-

proving these financial statements is on-going. For example, in future financialstatements, FASAB is proposing thatthe value of national defense property,plant, and equipment (weapons systemsand support property used in the per-formance of military missions and ves-sels held as part of the National DefenseReserve Fleet) be removed from the bal-ance sheet and that information aboutthese assets be reported in the steward-ship section of the financial statements.These assets are currently valued at $636billion. In addition, future financialstatements will include informationabout deferred maintenance (mainte-nance that was not performed when itshould have been or was scheduled).

The 1998 financial statements willalso expand the stewardship section,which will include a current services as-sessment showing both the short- andmedium-term direction of current pro-grams. The current services assessmentwill present actual receipt and outlaydata for all programs for the year forwhich the financial statements are pre-

pared (the base year) and estimates forat least six years subsequent to the baseyear. This assessment will thus facilitateevaluation of the sufficiency of future re-sources to sustain public services and tomeet current and future obligations asthey become due.

The stewardship section of these fi-nancial statements in future y ears will

“The accountingstandards developed byFASAB are tailored to

the FederalGovernment’s unique

characteristics and specialneeds.”

“The 1998 financialstatements will include a

current servicesassessment showing both

the short- andmedium-term directionof current programs.”



also include information about heritageassets and stewardship investments.Heritage assets are national monuments,museums and library collections. Stew-ardship investments include:

•Non-federal phy sical property: theFederal share of properties owned byState and local governments (e.g. high-ways and airports).

•Human capital: Investments in edu-cation and training programs financedby the Federal Government for thebenefit of the public.

• R esearch and development: FederalGovernment investments in basic andapplied research and development.

These investments will be separatelyidentified in the stewardship section,but will not be reported on the Consoli-dated Balance Sheet.

Economic and budgetary results

Economic conditions were ex-tremely favorable in fiscal 1997. Overthe year ending inSeptember, the rateof growth of eco-nomic activity accel-erated, job gainscontinued to be verystrong, and the un-employment ratefell to 24-y ear lows.At the same time, in-flation was very wellcontained, with theunderlying rate of in-flation dropping tolevels not seen since the mid1960’s.Strong growth in incomes contributedto a decline in the Federal budget deficitto its lowest level since 1974.

The economy in fiscal 1997

Real gross domestic product (GDP)grew by 3.9 percent during fiscal 1997(which encompasses the fourth quarterof calendar 1996 through the third quar-ter of calendar 1997), the fastest rate ofgrowth since fiscal year 1984. Growthwas strongest in the first two quartersof the fiscal year at a more than 4 per-cent annualized pace, then it moderatedto close to a 3 percent annualized rate inthe second half of the year.

The economy was led by stronggains in consumer spending and in busi-

ness capital investment. Consumerspending, which accounts for about two-thirds of real GDP, expanded by 3.8 per-cent during the fiscal year, much fasterthan the 2.4 percent average pace in theprior two fiscal years. Business invest-ment spending grew by 10.8 percent dur-ing fiscal 1997, chiefly due to continuedstrong gains in spending on capitalequipment such as computers and otherhigh technology goods. Residential con-struction started the fiscal year on aweak note but strengthened over thecourse of the year, posting a modest 2.2percent increase for the year as a whole.Restraining growth in fiscal 1997 wasfurther deterioration in net exports, asaccelerating domestic economic growthcontinued to draw in imports at a fasterpace than the growth in exports.

Employment growth accelerated infiscal 1997 as the economy added 2.8million new jobs, compared with gainsof 2.4 million and 2.6 million for theprevious two fiscal years. Most of the

new jobs were inthe private service-producing sector,with especiallyrapid growth inbusiness and engi-neering and manage-ment services.Employment inmanufacturing in-creased by 126,000in fiscal 1997, andconstruction jobsgrew by more than

200,000 due to a pickup in both residen-tial and nonresidential building. The un-employment rate fell below 5 percent atthe end of the fiscal year and averaged5.1 percent for the y ear as a whole.These rates were the lowest rates of un-employment in 24 years.

Despite healthy economic growthand very low rates of unemployment,price pressures did not build up duringthe year; indeed, if any thing, inflationdeclined. Broad measures of inflation re-mained extremely low, rising at ratesnot seen since the mid-1960’s. Lower en-ergy and food prices play ed a role inholding inflation down, as prices forthese commodities eased after somepickup in the prior year. Prices forother goods and services were also well-

“Over the year ending inSeptember, the rate ofgrowth of economic

activity accelerated, jobgains continued to bevery strong, and the

unemployment rate fellto 24-year lows.”



contained. Total consumer prices in-creased by 2.2 percent during the fiscalyear and “core” prices (excluding thefood and energy components) also rosea modest 2.2 percent. In fiscal 1996, incontrast, total consumer prices in-creased by 3.1 percent and the underly-ing (“core”) rate of inflation was 2.6percent.

Budget resultsThe Federal budget deficit improved

dramatically in fiscal 1997, falling to $22billion from $107 billion a y ear earlier.The 1997 deficit was the lowest in morethan two decades, and continues the sub-stantial progress made over the past fewyears in reducing the deficit. Since reach-ing an all-time high of $290 billion in fis-cal 1992, the deficit has been cut byalmost 90 percent over the past fiveyears. As a share of GDP, the deficitnow stands at 0.3 percent, the lowestpercentage since fiscal 1969, when thebudget was last in surplus.

The fiscal 1997 deficit was well be-low the deficit that was forecast at thestart of the fiscal y ear, due in large partto higher-than-expected receipts, whichincreased by 8.7 percent in fiscal 1997.Growth of receipts was led by stronggains in individual income tax pay -ments, reflecting rapid job and incomegrowth as well as high levels of capitalgains from the rising stock market. Cor-porate income tax receipts also grew rap-idly as profits continued to rise.

Growth of outlays was just 2.7 per-cent in fiscal 1997, held down in part byspectrum auction proceeds and inflows

to the deposit insurance account, bothof which are netted against outlays inbudget accounting. Excluding those two

categories, growth of outlay s in fiscal1997 was approximately 3.5 percent,still a very moderate increase. Most cate-gories of outlay s posted only modest in-creases in spending compared with theprevious y ear, except for defense and afew small programs, which grew atslightly faster rates.

Improvements in the deficit havecontinued into fiscal 1998. The FederalBudget for fiscal 1999 projects thebudget to show a $10 billion deficit infiscal 1998 — followed by a nearly $10billion surplus in fiscal 1999, whichwould be the first surplus in 30 years.Some outside analysts believe that re-sults so far through the current fiscalyear suggest that the fiscal 1998 budgetmay actually post a surplus — whichwould be the first in 29 years — insteadof a small deficit.

Revenue and expensesummary

Revenue

Nonexchange revenue is the U.S.Government’s primary source of reve-nue, and totaled $1,577 billion in 1997.More than 95 percent of this total camefrom tax receipts, with the remaindercoming from customs duties and othermiscellaneous receipts.

Earned revenues are inflows of re-sources that arise from exchange transac-tions. Exchange transactions occurwhen each party to the transaction sacri-fices value and receives value in return— for example, when the U.S. Govern-ment sells goods or services to the pub-lic. During 1997, the Governmentearned $158 billion in such revenue.These revenues are offset against the

“The Federal budgetdeficit improved

dramatically in fiscal1997, falling to $22

billion from $107 billiona year earlier.”



gross cost of the related functions to ar-rive at the function’s net cost. The U.S.Government also earned $12 billionthat was not offset against the cost ofany function.

Expenses by functionThe net cost of U.S. Government op-

erations was $1,603 billion for 1997.Net cost represents the gross cost of op-erations less attributable earned reve-nues. The statement of net cost reflectsthe cost incurred to carry out the na-tional priorities identified by the Presi-dent and the Congress. The functionsand subfunctions used to accumulatecosts associated with the national priori-ties are identified in the President’sbudget and described in detail in theConsolidated Financial Statements sec-tion of this report. The accompanyingchart presents the percentage of the netcost of Government operations repre-sented by each of the U.S. Govern-ment’s functions.

Asset and liability summary

Assets

The assets of the U.S. Governmentare the resources available to pay liabili-ties or to satisfy future service needs.The assets presented on the balancesheet are not a comprehensive list ofFederal resources. For example, theGovernment’s most important financialresource, its ability to tax and regulatecommerce, cannot be quantified and isnot reflected. Natural resources andstewardship land (national parks, forestsand grazing lands) are other examples ofresources that are not included in the$1,602 billion of Federal assets reportedat the end of 1997. The accompanyingchart depicts the major categories of re-ported assets as of September 30, 1997as a percentage of reported total assets.Detailed information about the compo-nents of these asset categories can befound in the notes to the financial state-ments.

Liabilities

At the end of 1997, the U.S. Govern-ment reported liabilities of $6,605 bil-lion. These liabilities are probable andmeasurable future outflows of resourcesarising out of past transactions orevents. The largest component of these

liabilities ($3,768 billion) is representedby Federal debt securities held by thepublic. The next largest component($2,244 billion) relates to pension, dis-ability , and health care costs for veter-ans, and retired military and Federalemployees.

Another liability, which will likelyrequire substantial future budgetary re-sources to liquidate, is related to envi-ronmental clean-up costs. As ofSeptember 30, 1997, the cost of cleaningup environmental contamination was es-timated to be $212 billion. This figure issubject to much uncertainty, however,for two reasons. First, it does not in-clude complete estimates from all agen-cies with likely environmental clean upresponsibilities. Second, agencies lacksubstantial experience in estimatingclean-up costs. Therefore it is likely thatthe liability estimate will be revised asagencies gain experience in identifyingand estimating environmental clean-upcosts. The accompanying chart presents



the percentage of total Federal liabilitiesrepresented by each of the categories ofliabilities reported on the balance sheet.Additional details about the U.S. Gov-ernment’s reported liabilities can befound in the notes to the financial state-ments.

Future commitmentsThe U.S. Government has substan-

tial future commitments to its citizens,including the provision of social insur-ance through the Social Security andMedicare programs and other commit-ments associated with Federal insuranceand loan programs. Information aboutthe nature and extent of these commit-ments is presented below.

Financial condition of the SocialSecurity trust funds

Two trust funds have been estab-lished by law to finance the Social Secu-rity program (OASDI) -Federal OldAge and Survivors Insurance (OASI)and Federal Disability Insurance (DI).OASI pays retirement and survivorsbenefits and DI pay s benefits after aworker becomes disabled. OASDI reve-nues consist of taxes on earnings thatare paid by employees, their employers,and the self-employ ed. OASDI also re-ceives revenue from taxation of part ofSocial Security benefits. Revenues thatare not needed to pay current benefitsor administrative expenses are investedin Treasury securities to earn interestfor the trust funds. The securities issuedto the trust funds are guaranteed as toboth principal and interest and backedby the full faith and credit of the U.S.

Government. All else equal, the issu-ance of securities to the trust funds re-duces the amount Treasury mustborrow from the public. Conversely,when the trust funds need cash, they re-deem investments and raise the financ-ing requirements of the Treasury (again,all else equal).

The Board of Trustees of the OASIand DI Trust Funds provides the Presi-dent and the Congress with short range(10 y ears) and long range (75 year) actu-arial estimates of each trust fund. Be-cause of the inherent uncertainty inestimates for as long as 75 years into thefuture, the Social Security Trustees usethree alternative sets of economic anddemographic assumptions to show arange of possibilities. Most analysts usethe intermediate set of assumptions toevaluate the financial condition of theSocial Security program.

The 75-year estimates assume that fu-ture workers (except for those workingin types of employment not mandato-rily covered by the program) are cov-ered by Social Security once they enterthe labor force. The estimates reflect theimpact of the retirement of the babyboomers, as well as changing demo-graphics (e.g. an increase in life expec-tancy and a decline in the birth rate).For example, in 1960, 5 workers paidfor every beneficiary . Today, the ratioof workers to beneficiaries is 3.3 to 1and 30 years from now, when the babyboom generation retires, it will drop to2 to 1. The retirement component of

the program is financed largely on a“pay -as-you-go” basis, i.e., current retire-ment benefits are largely financed bycurrent payroll contributions.

Under current legislation and usingintermediate assumptions, the Trusteesestimated in their 1997 report that by2012 cash disbursements for the pro-grams will exceed cash receipts and by

“The Administrationintends to work with

Congress on a bipartisanbasis to enact long-termSocial Security reform in

1999.”



2029 the combined trust funds assets,primarily investments in Treasury secu-rities, will likely be exhausted. With nochange in the program, in 2012 the trustfunds are expected to begin using inter-est on their investments to cover thecash shortfall and to pay benefits. Start-ing in 2019, they would begin redeem-ing their investments in Treasurysecurities to provide the needed cash. In2029 trust fund assets would be ex-hausted; at that time, tax revenueswould be sufficient to pay approxi-mately 75 percent of the benefits due. Inthese consolidated financial statements(which eliminate intragovernmental as-sets and liabilities), the OASDI cashshortfall would result in a decrease incash and/or an increase in amounts bor-rowed from the public.

After a year of public discussion in1998, the Administration intends towork with Congress on a bipartisan ba-sis to enact long-term Social Security re-form in 1999. Acting sooner rather thanlater to address the long-term financingneeds of the program will make the re-quired changes less disruptive and en-sure that Social Security works as wellfor future generations as it has for pastgenerations. Additional informationabout the Social Security program canbe found in the stewardship section ofthese financial statements.

Financial condition of the medicaretrust funds

Two trust funds have been estab-lished to finance the Medicare program.The Medicare Part A Hospital Insur-ance (HI) Trust Fund is financed by a2.9 percent tax on wages and salaries re-quired to be paid equally by employees

and employers. The Medicare Part BSupplementary Medical Insurance (SMI)Trust Fund receives premium paymentson behalf of Medicare beneficiaries who

have elected coverage. These premiumscovered approximately 25 percent ofthe fund’s costs in fiscal 1997. The re-mainder of the costs is funded by Con-gressional appropriations.

The 1997 trustee’s report projectedthat the HI trust funds’ assets were ex-pected to be depleted by 2001. How-ever, the Balanced Budget Act of 1997,which was enacted after the trustee’s re-port was issued, contained provisionsthat reduce the growth of the programs’costs. As a result of the Balanced BudgetAct of 1997, the HI trust fund assets arenot expected to be depleted until 2010.That legislation also established a bipar-tisan commission to assess and recom-mend structural changes to ensureMedicare’s long term viability . TheCommission is required to issue its re-port by March 1999. The accompanyingchart presents the end of year HI trustfund balances. Additional informationabout the Medicare program can befound in the stewardship section ofthese financial statements.

Other commitmentsThe Federal Government has signifi-

cant commitments associated with Fed-eral insurance and loan programs. Theseprograms include bank deposit insur-ance, national flood insurance, federalcrop insurance, and a range of other in-surance commitments that total over$2,774 billion. In addition, the U.S.Government has guaranteed a substan-tial portion of this country’s housing,agriculture and education loans. Al-though the face value of these guaran-

“The FederalGovernment has

significant commitmentsassociated with Federal

insurance and loanprograms.”



tees was in excess of $712 billion as ofSeptember 30, 1997. The amounts re-ported for insurance and loan commit-ments represent the most conservativepossible assumptions of maximum riskexposure. These amounts are not futureclaims on Federal resources. However,the risk of future outlays associatedwith such commitments could be sub-stantial. Additional details about theU.S. Government’s future commit-ments are presented in the notes to thefinancial statements.

Management initiativesSince passage of the CFOs Act in

1990 and its expansion in 1994, muchhas been accomplished. There is now acomprehensive set of generally acceptedaccounting standards in place. For thefirst time in its history, the U.S. Govern-ment has prepared and subjected toaudit consolidated financial statementscovering all its vast and complex pro-grams and activities.The 24 agencies sub-ject to the CFOs Actare issuing auditedagency-wide finan-cial statements. Gov-ernmentcorporations subjectto the GovernmentCorporation andControl Act also areissuing audited finan-cial statements. While these accomplish-ments are significant, they are just a be-ginning.

The Administration has designated fi-nancial management as one of the Presi-dent’s priority management objectives.The Administration has expressed itscommitment to assuring the integrity ofFederal financial information and gain-ing an unqualified opinion on the 1999

Consolidated Financial Statementsof the U.S. Government. For the Ad-ministration to achieve these objectives,agencies must improve the quality oftheir financial information.

Reflecting the further progress thatis needed to produce reliable financialstatements, auditors were unable to ren-der an opinion on the consolidated fi-nancial statements of the U.S.Government because accurate informa-tion about the amount and value of cer-

tain assets, liabilities, and costs was lack-ing. Actions to correct these weaknesseshave been identified and are being imple-mented. For example, plans at Defenseinclude completing a new accountingsy stems architecture, reviewing inven-tory accounting processes, and develop-ing a department wide propertyaccountability system. OMB, Treasury,and GAO are working with the majorcredit agencies to improve reporting ofloans and loan guarantees.

In addition, Treasury plans to stepup its efforts with agencies’ to ensure ef-fective cash disbursement reconcili-ations by providing frequent analysis ofcash reciept and disbursement differ-ences so that they can be promptly re-solved.

Treasury and OMB are coordinatingefforts to resolve the problems agenciesare having in eliminating transactionsbetween Federal agencies. Treasury andOMB will strengthen guidance and re-

quirements foragencies to captureinformation neededto reconcile bal-ances with theirFederal tradingpartners. Treasurywill also begin themodification of itssy stems to supportagency efforts.

In an effort todetermine the full extent of improperpayments that occur in major Federalprograms, the OMB is working withthe GAO, Inspectors General and af-fected Federal agencies in identifying atrisk programs and designing a cost effec-tive approach to assessing the extent ofimproper payments and appropriate re-mediation measures. Audits of Federalprograms pursuant to the Single AuditAct Amendments of 1996 and OMB Cir-cular A- 133, “Audits of States, Localgovernments, and Non-Profit Organiza-tions,” will be the principal mechanismfor assessing the extent of improper pay-ments.

Finally, Treasury will increase its for-mal and informal training of agency fi-nancial management personnel. Thetraining will address common errorsidentified in agency information used inthe preparation of the U.S. Govern-

“The Administration hasdesignated financial

management as one ofthe President’s priority

management objectives.”



ment’s 1997 consolidated financial state-ments.

Year 2000 ConversionThe Year 2000 problem presents the

most sweeping and urgent informationtechnology challenge faced by publicand private organiza-tions since the begin-ning of the informa-tion technology era.For the past severaldecades, informa-tion systems havety pically used twodigits to representthe y ear, such as“98" for 1998, in or-der to conserve elec-tronic data andstorage space and re-duce operatingcosts. In this format,2000 is indistinguishable from 1900 be-cause both are represented as ”00". As aresult, if not modified, computer sys-tems or applications that use dates orperform date/time sensitive calculationsmay generate incorrect results beyond1999.

The Administration has devoted agreat deal of time and attention to thisissue. OMB requires Federal agencies toreport quarterly on their progress in ad-dressing the issue of year 2000 conver-sion. More recently, the President hasestablished a council on Year 2000 Con-version led by an Assistant to the Presi-dent. This person will oversee Federalpreparations, speak for the UnitedStates in national and international fo-rums, and coordinate with governmentsat all levels.

The U.S. Government’s strategy forresolving the Year 2000 problem hasfive phases: awareness, assessment, reno-vation, validation, and implementation.The milestone for completion of workfor the renovation phase is targeted forSeptember 1998. Other milestones are

January 1999 forvalidation andMarch 1999 for im-plementation. Prior-ity is being given tothe 7,850 “missioncritical” systems. Asof February 15,1998, OMB esti-mated that 35 per-cent have beenfixed, about 45 per-cent still need to berepaired, 15 percentwill be replaced and5 percent will be re-

tired. OMB is monitoring agency pro-gress and taking actions necessary to en-sure milestones are met. The latest costestimate for corrective actions, providedby agencies to OMB, is nearly $5 billion.

Additional Information

Additional details about the informa-tion contained in these financial state-ments can be found in the financialstatements of the individual agencieslisted in the Appendix. In addition, re-lated U.S. Government publicationssuch as the “Budget of the United StatesGovernment’, the ”Treasury Bulletin,”the “Monthly Treasury Statement of Re-ceipts and Outlays of the United StatesGovernment,” and the Trustee’s reportsfor the Social Security and Medicare pro-grams may be of interest.

“The Year 2000 problempresents the most

sweeping and urgentinformation technologychallenge faced by publicand private organizations

since the beginning ofthe informationtechnology era.”



Comptroller Generalof the United States

Washington, D.C. 20548

B-279169

March 31, 1998

The PresidentThe President of the SenateThe Speaker of the House of Representatives

The Chief Financial Officers (CFO) Act, as expanded by the GovernmentManagement Reform Act, mandates important reforms in federal financialmanagement to promote greater accountability in managing the finances of ournational government. Among these reforms are requirements for the preparationand audit of individual financial statements for the federal government’s 24 largestdepartments and agencies and the annual submission of consolidated financialstatements for the U.S. government. GAO is required to audit the consolidatedstatements, and our first report is enclosed.

These reforms are leading to marked improvements in federal financialmanagement. Several major agencies have made good progress in producing morereliable financial information about their operations. However, as outlined in ourreport, improvements in other areas of government financial operations have yet tobe made and critical governmentwide accounting issues still need to be addressed.The federal government can achieve the fiscal accountability called for by the CFOAct, but strong leadership, commitment, and additional concerted effort will benecessary.

We appreciate the cooperation and assistance we received from the Chief FinancialOfficers and Inspectors General throughout government, as well as Department ofTreasury and Office of Management and Budget officials, in carrying out ourresponsibility to audit the government’s consolidated financial statements. We lookforward to continuing to work with these officials to achieve the CFO Act’sfinancial management reform goals.

James F. HinchmanActing Comptroller Generalof the United States

General Accounting Office Report 13


United StatesGeneral Accounting OfficeWashington, D.C. 20548

Accounting and InformationManagement Division

B-279169

The PresidentThe President of the SenateThe Speaker of the House of Representatives

The Chief Financial Officers Act, as expanded by the Government Management ReformAct, requires the Secretary of the Treasury, in coordination with the Director of the Officeof Management and Budget, to annually submit to the President and the Congress auditedconsolidated financial statements of the U.S. government beginning with those for fiscalyear 1997. GAO is required to audit these statements.

In summary, significant financial systems weaknesses, problems with fundamentalrecordkeeping, incomplete documentation, and weak internal controls, includingcomputer controls, prevent the government from accurately reporting a large portion of itsassets, liabilities, and costs. These deficiencies affect the reliability of the consolidatedfinancial statements and much of the underlying financial information. They also affectthe government’s ability to accurately measure the full cost and financial performance ofprograms and effectively and efficiently manage its operations. Major problems includedthe federal government’s inability to

—properly account for and report billions of dollars of property, equipment, materials,and supplies;

—properly estimate the cost of most federal credit programs and the related loansreceivable and loan guarantee liabilities;

—estimate and report material amounts of environmental and disposal liabilities andrelated costs;

—determine the proper amount of various reported liabilities, including postretirementhealth benefits for military and federal civilian employees, veterans compensationbenefits, accounts payable, and other liabilities;

—accurately report major portions of the net costs of government operations;

—determine the full extent of improper payments that occur in major programs and thatare estimated to involve billions of dollars annually;

—properly account for billions of dollars of basic transactions, especially those betweengovernmental entities;

14 General Accounting Office Report


—ensure that the information in the consolidated financial statements is consistentwith agencies’ financial statements;

—ensure that all disbursements are properly recorded; and

—effectively reconcile the change in net position reported in the financialstatements with budget results.

Such deficiencies prevented us from being able to form an opinion on thereliability of the accompanying financial statements. They are the result ofwidespread material internal control and financial systems weaknesses thatsignificantly impair the federal government’s ability to adequately safeguardassets, ensure proper recording of transactions, and ensure compliance with lawsand regulations. Additionally, (1) serious computer control weaknesses expose thegovernment’s financial information to inappropriate disclosure, destruction,modification, or fraud and (2) material control weaknesses affect the government’stax collection activities. Further, tests for compliance with selected provisions oflaws and regulations related to financial reporting disclosed material instances ofnoncompliance discussed later in this report.

Our audit of the federal government’s consolidated financial statements and theInspectors General (IG) audits of major component agencies’ financial statementsfor fiscal year 1997 have resulted in (1) an identification and analysis ofdeficiencies in the government’s recordkeeping and control systems and (2)recommendations to correct them. Fixing these problems represents a significantchallenge because of the size and complexity of the federal government and thediscipline needed to comply with new accounting and reporting requirements.

Considerable effort is already underway to make such improvements. Severalindividual agencies that have been audited for a number of years faced seriousdeficiencies in their initial audits and made good progress in resolving them. Witha concerted effort, the federal government, as a whole, can continue to makeprogress toward generating reliable information on a regular basis. Annualfinancial statement audits are essential to ensuring the effectiveness of theimprovements now underway.

This report provides our (1) disclaimer of opinion on the government’s fiscal year1997 consolidated financial statements, (2) report on internal controls, and (3)report on compliance with selected provisions of laws and regulations related tofinancial reporting. It also presents information on (1) the Year 2000 computingproblem, (2) issues affecting the government’s long-term financial condition, and(3) actions underway to improve financial reporting across the federal government.The objectives, scope, and methodology of our work are discussed in the appendix

B-279169



to this report. We provided a draft of this report to senior Department of the Treasuryand Office of Management and Budget (OMB) officials, who expressed theircommitment to address the deficiencies this report outlines. Our work was done inaccordance with generally accepted government auditing standards.

DISCLAIMER OF OPINION

Because we were unable to determine the reliability of significant portions of theaccompanying consolidated financial statements for the reasons described above, weare unable to, and we do not, express an opinion on the accompanying consolidatedfinancial statements for fiscal year 1997. However, we were able to determine thatamounts reported for environmental and disposal liabilities and liabilities for veteranscompensation benefits are understated by material amounts.

Additionally, certain agencies have not, at this date, finalized their individual financialstatements for fiscal year 1997. It is possible that additional recordkeeping and auditingprocedures will result in changes in those agency statements. Based on the auditprocedures we have performed, we are satisfied that any such changes will notsignificantly affect our findings and conclusions in this report.

Because of the government’s serious systems, recordkeeping, documentation, andcontrol deficiencies, amounts reported in the consolidated financial statements andrelated notes do not provide a reliable source of information for decision-making by thegovernment or the public. These deficiencies also diminish the reliability of anyinformation contained in the accompanying Management’s Discussion and Analysisand any other financial management information—including budget information andinformation used to manage the government day-to-day—which is taken from the samedata sources as the consolidated financial statements.

Material Deficiencies

The following sections describe material deficiencies we identified and discuss theireffect on the financial statements and the management of government operations.

Property, Plant and Equipment and Inventories and Related Property The federalgovernment—one of the world’s largest holders of physical assets—does not haveaccurate information about the amount of assets held to support its domestic and globaloperations. Hundreds of billions of dollars of the more than $1.2 trillion of thesereported assets are not adequately supported by financial and/or logistical records.These include (1) operating materials and supplies comprised largely of ammunition,defense repairable items (such as navigational computers, landing gear, andtransmissions), and other military supplies and (2) buildings, military equipment, andvarious government-owned assets in the hands of private sector contractors.

B-279169



Because the government does not have complete and reliable information to support itsasset holdings, it could not satisfactorily verify the existence of all reported assets,substantiate the amounts at which they were valued, or determine whether all of itsassets were included in its financial statements. For example, certain recorded militaryproperty had, in fact, been sold or disposed of in prior years—or could not belocated—and an estimated $9 billion of known military operating materials andsupplies were not reported. These problems impair the government’s ability to (1)know the location and condition of all its assets, including those used for militarydeployment, (2) safeguard them from physical deterioration, theft, or loss, (3) preventunnecessary storage and maintenance costs or purchase of assets already on hand, and(4) determine the full costs of government programs that use the assets.

Loans Receivable and Loan Guarantee Liabilities Most federal credit agenciesresponsible for federal lending programs were unable to properly report the cost ofthese programs. Federal credit programs include direct loans and loan guarantees forfarms, rural utilities, low and moderate income housing, small business, veterans’mortgages, and student loans. As of the end of fiscal year 1997, the governmentreported $156 billion of loans receivable and $37 billion of liabilities for estimatedlosses on defaulted guaranteed loans. However, the net loan amounts expected to becollected and guarantee amounts expected to be paid could not be reasonably estimatedbecause of a lack of historical data or other evidence. In addition, some agencies didnot have adequate information to support the validity of their outstanding direct loansor to track the specific loans that they have an obligation to guarantee. Until federalcredit agencies correct these serious data deficiencies, information supplied by themabout the cost of their credit programs, including information to support annual budgetrequests for these programs, should be used with caution in making future budgetarydecisions, managing program costs, and measuring the performance of credit activities.

Environmental Liabilities Liabilities for disposal of hazardous waste andremediation of environmental contamination, reported at $212 billion, were materiallyunderstated primarily because an estimate has not been developed for major weaponssystems, such as aircraft, missiles, ships and submarines, and for ammunition. Properlystating these liabilities could assist in determining priorities for cleanup activities andallow for appropriate consideration of future budgetary resources needed to carry outthese activities.

Liabilities The systems and data were not available to accurately estimatesignificant portions of the more than $2.2 trillion reported as federal employee andveterans benefits liabilities. For example, to estimate the $218 billion reported asmilitary postretirement health benefit liabilities, the government used unaudited budgetinformation because the necessary cost data were not available. Also, the federalgovernment cannot provide adequate assurance about the reliability of historical claiminformation at the insurance carrier-level used to estimate the $159 billion reported for

B-279169



civilian postretirement health benefit liabilities. Additionally, the estimated liabilityfor veterans compensation benefits is materially understated because it does notinclude estimates for anticipated changes in disability ratings and for incurredclaims not yet reported. In addition, some agencies do not maintain adequaterecords and controls or have systems to ensure the accuracy and completeness ofdata used to calculate estimates of a reported $98 billion of accounts payable and areported $169 billion of other liabilities such as those for litigation.

These problems significantly affect the determination of the full cost of thegovernment’s current operations, as well as the extent of actual liabilities. Further,commitments and contingencies were not properly reported because many amountsrepresent the maximum risk exposure rather than the amount of loss that isreasonably possible and certain commitments are not reported.

Costs of Government Operations The government was unable to supportsignificant portions of the more than $1.6 trillion reported as the total net costs ofgovernment operations. The previously discussed material deficiencies in reportingassets and liabilities and the lack of effective reconciliations, as discussed below,also affect reported net costs. Further, we were unable to determine whether theamounts reported in the individual net cost categories reported in the Statement ofNet Cost and in the subfunction detail following the statement were properlyclassified. Without accurate cost information, the federal government is limited inits ability to control and reduce costs, assess performance, evaluate programs, andset fees to recover costs where required.

The government is also unable to determine the full extent of improperpayments—that is, payments made for other than valid, authorized purposes. In thisregard, estimates of improper payments in major federal programs, such asMedicare, total in the billions of dollars annually. The full extent of such payments,however, is unknown because many agencies have not estimated the magnitude ofimproper payments in their programs. The reasons for improper payments rangefrom mistakes to fraud and abuse. Such payments are likely to continue untilagencies implement better systems and controls.

Unreconciled Transactions To make the consolidated financial statementsbalance, Treasury recorded a net $12 billion item on the Statement of Changes inNet Position, which it labeled unreconciled transactions. This out-of-balanceamount is the net of more than $100 billion of unreconciled transactions—bothpositive and negative amounts—which Treasury attributes to the government’sinability to properly identify and eliminate transactions between federalgovernment entities and to agency adjustments that affected net position.

B-279169



Agencies’ accounts can be out of balance with each other, for example, when one or theother of the affected agencies does not properly record a transaction with another agencyor the agencies record the transactions in different time periods. These out-of-balanceconditions can be detected and corrected by instituting procedures for reconcilingtransactions between agencies. Generally, such reconciliations are not performed. Theseunreconciled transactions result in material misstatements of assets, liabilities, revenues,and/or costs.

Preparation of Consolidated Financial Statements The federal government cannotensure that the information in the consolidated financial statements is consistent withagency financial statements. Treasury relies on agencies to submit data needed to preparethe federal government’s consolidated financial statements. Such data consists ofapproximately 2,000 individual reporting components, each having many accountbalances. However, several agencies were unable to provide assurance that amountssubmitted to Treasury agreed with their agency financial statements. In addition, manyagencies needed to make significant subsequent adjustments to their submissions in aneffort to properly classify amounts in the consolidated financial statements. We foundfurther misstatements, which Treasury corrected, totalling several hundred billion dollarsin agency-submitted information primarily because (1) agencies submitted incorrectlycoded financial data that contributed to the unreconciled transactions described above, (2)agencies recorded similar transactions in different general ledger accounts, and (3) certainamounts were materially misallocated to net cost categories.

These problems are compounded by the substantial volume of information submitted,limitations in the federal government’s current general ledger account structure, and thesignificant amount of other information that Treasury must gather to prepare theconsolidated financial statements. As a result, additional misstatements in thegovernment’s consolidated financial statements could exist.

Cash Disbursement Activity Several major agencies are not effectively reconcilingdisbursements. These reconciliations are a key control—similar in concept to individualsreconciling personal checkbooks with a bank’s records each month. However, there were(1) billions of dollars of unresolved gross differences between agencies’ and Treasuryrecords of cash disbursements as of the end of fiscal year 1997 and (2) large amounts ofunresolved differences arbitrarily written off by some agencies without adequatelydetermining whether their records may, in fact, have been correct. As a result, thegovernment is unable to ensure that all disbursements are properly recorded. Therefore,its financial statements could contain significant misstatements.

Reconciling the Change In Net Position with Budget Results The government didnot have a process to obtain information to effectively reconcile the reported change innet position of $3 billion and the reported budget deficit of $22 billion. The reconcilingitems comprising the difference are typically the result of timing differences in the

B-279169



recognition and measurement of revenue and costs. Under budgetary accounting, thebudget deficit reflects outlays and receipts that generally are measured on a cash basis.For financial statement reporting purposes, costs are reported when incurred ratherthan when paid. Federal decisionmakers use budgetary accounting to control the useof funds and for fiscal planning. Once the federal government produces reliableconsolidated financial statements, an effective reconciliation would provide additionalassurance of the reliability of budget results.

MATERIAL CONTROL WEAKNESSES

While the purpose of our work was not to express, and we do not express, an opinionon internal controls, we found pervasive material weaknesses 1 in internal controlsacross government that contribute to these deficiencies. These weaknesses, such as thelack of effective reconciliations and poorly designed systems, result in ineffectivecontrols over (1) safeguarding the federal government’s assets from unauthorizedacquisition, use, or disposition, (2) ensuring that transactions are executed inaccordance with laws governing the use of budget authority and with other relevantlaws and regulations, and (3) ensuring the reliability of financial statements.

Individual agency financial statement audit reports describe the affect of suchweaknesses on specific agencies and identify additional internal control weaknesses,some of which are material to individual agencies. We also found that (1) widespreadand serious computer control weaknesses affect virtually all federal agencies andsignificantly contribute to many material deficiencies discussed above and (2) materialcontrol weaknesses affect the government’s tax collection activities. The scope of ourevaluation of internal controls was limited by the deficiencies noted throughout thisreport.

Computer Control Weaknesses

Widespread computer control weaknesses are placing enormous amounts of federalassets at risk of fraud and misuse, financial information at risk of unauthorizedmodification or destruction, sensitive information at risk of inappropriate disclosure,and critical operations at risk of disruption. Significant information securityweaknesses in systems that handle the government’s unclassified information havebeen reported in each of the major federal agencies. The most serious reportedproblem is inadequately restricted access to sensitive data. In today’s highlycomputerized and interconnected environment, such weaknesses are vulnerable toexploitation by outside intruders as well as authorized users with malicious intent.

1 A material weakness is a condition in which the design or operation of one or moreof the internal control components does not reduce to a relatively low level the riskthat errors or irregularities in amounts that would be material to the financialstatements may occur and not be detected promptly by employees in the normal courseof performing their duties.

B-279169



The consequences of computer control weaknesses could be devastating andcostly—for instance, placing billions of dollars of payments and collections at riskof fraud and impairing military operations. In addition to these potentialconsequences at Treasury and Defense, identified weaknesses at agencies such as theDepartment of Health and Human Service’s Health Care Financing Administrationand the Social Security Administration place sensitive medical and other personalrecords at risk of disclosure.

Because computer control weaknesses are pervasive across government, in February1997, we added information security to our list of federal high-risk areas. 2 Theproblem persists, in large part, because agency managers have not fully instituted aframework for assessing risk and ensuring that necessary policies and controls are inplace and remain effective on an ongoing basis. Over the past 2 years, we and theIGs have issued more than 70 reports that identify computer control weaknesses inthe federal government and made recommendations to address them.

Tax Collection Activities

The federal government has material weaknesses in controls related to its taxcollection activities, which affect its ability to efficiently and effectively account forand collect the government’s revenue. 3 This situation requires extensive reliance onad hoc programming and analysis and material audit adjustments to prepare basicfinancial information. For example, the government currently does not obtaininformation necessary to identify tax collections by every type of tax at the time ofcollection. As a result, the government cannot separately report revenue for three ofthe four largest revenue sources—Social Security, Hospital Insurance, andindividual income taxes. Because of this, the government had to report these threetax types in the same line item on the Consolidated Statement of Changes in NetPosition. Additionally, excise tax revenues are distributed to the relevant trust fundsbased on assessments rather than, as required by the Internal Revenue Code, oncollections.

2 High-Risk Series: An Overview (GAO/HR-97-1, February 1997) and High-RiskSeries: Information Management and Technology (GAO/HR-97-9, February 1997).

3 Financial Audit: Examination of IRS’ Fiscal Year 1997 Custodial FinancialStatements (GAO/AIMD-98-77, February 26, 1998).

B-279169



Serious weaknesses also affect the federal government’s ability to effectivelymanage its taxes receivable and other unpaid assessments. 4 The lack of appropriatesubsidiary systems to track the status of taxpayer accounts affects the government’sability to make informed decisions about collection efforts. This weakness, forexample, has resulted in the government pursuing and collecting, from individualtaxpayers, taxes that had already been paid. Additionally, the federal government isvulnerable to loss of tax revenue due to weaknesses in controls over disbursementsfor tax refunds. The government does not perform fundamental verificationprocedures to ensure the validity of amounts claimed by taxpayers as overpaymentsprior to making disbursements for refunds. Consequently, it does not have effectivecontrols to prevent the inappropriate payment of refunds, increasing its exposure tolost revenue.

NONCOMPLIANCE WITHLAWS AND REGULATIONS

Our objective was not to, and we do not, express an opinion on overall compliancewith laws and regulations. Tests for compliance with selected provisions of laws andregulations related to financial reporting disclosed that, as discussed earlier, thefederal government makes improper payments in major programs such as Medicare.Additionally, as described below, we noted material noncompliance related tofinancial management system requirements. However, our work would notnecessarily disclose all material noncompliance. Further, the scope of our tests waslimited by the inability to audit the financial statements. Other instances ofnoncompliance, some of which are material to individual federal agencies, arereported in the individual agency financial statement audit reports.

The Federal Financial Management Improvement Act of 1996 requires auditorsperforming financial audits to report whether agencies’ financial managementsystems comply substantially with federal accounting standards, financial systemsrequirements, and the government’s standard general ledger at the transaction level.We reported in October 1997 5 that prior audit results and agency self-reporting allpoint to significant challenges that agencies must meet to fully implement theserequirements. The significant financial management deficiencies discussedthroughout this report underscore the challenge.

4 Other unpaid assessments consist of amounts for which (1) neither the taxpayer nora court has affirmed that the amounts are owed and (2) the government does notexpect further collections due to factors such as the taxpayer’s death, bankruptcy, orinsolvency.

5 Financial Management: Implementation of the Federal Financial ManagementImprovement Act of 1996 (GAO/AIMD-98-1, October 1, 1997).

B-279169



The majority of federal agencies’ financial management systems are not designed to meetcurrent accounting standards and systems requirements and cannot provide reliablefinancial information for managing government operations and holding managersaccountable. Auditors’ reports for fiscal year 1997 agency financial audits are disclosingthe continuing poor shape in which agencies find their financial systems. As of the date ofthis report, only four agency auditors have reported that their agency’s financial systemscomply with the act’s requirements.

YEAR 2000 COMPUTING CRISIS

The Year 2000 computing crisis is the most sweeping and urgent information technologychallenge facing public and private sector organizations. 6 The federal government isextremely vulnerable due to its widespread dependence on computer systems to processfinancial transactions and management information, deliver vital public services, andcarry out its operations. This challenge is made more difficult by the age and poordocumentation of the government’s existing systems and its lackluster track record inmodernizing systems to deliver expected improvements and meet promised deadlines.

Consequently, we surfaced the Year 2000 computing crisis as a high-risk area acrossgovernment in February 1997. Unless this issue is successfully addressed, seriousconsequences could occur. For example,

—payments to veterans with service-connected disabilities could be severely delayed ifthe system that issues them either halts or produces checks so erroneous that it must beshut down and checks processed manually;

—the Social Security Administration process to provide benefits to disabled personscould be disrupted if interfaces with state systems fail;

—federal systems used to track student loans could produce erroneous information onloan status, such as indicating that a paid loan was in default;

—Internal Revenue Service (IRS) tax systems could be unable to process returns, therebyjeopardizing revenue collection and delaying refunds; and

—the military services could find it extremely difficult to efficiently and effectivelyequip and sustain its forces around the world.

6 For the past several decades, information systems have typically used two digits torepresent the year, such as “98" for 1998, in order to conserve electronic data storage andreduce operating costs. In this format, however, 2000 is indistinguishable from 1900because both are represented as ”00." As a result, if not modified, computer systems orapplications that use dates or perform date- or time-sensitive calculations may generateincorrect results beyond 1999.

B-279169



In the past year, we have issued over 20 reports outlining actions underway in a widerange of federal activities to address this challenge and providing numerousrecommendations for additional improvements needed. Moreover, the President recentlycreated a Council on Year 2000 Conversion, led by an Assistant to the President, tooversee federal agencies’ Year 2000 efforts, speak for the United States in national andinternational forums, and coordinate with governments at all levels, as well as with theprivate sector. While some progress has occurred, a great deal of additional effort isrequired to prevent serious disruptions in government operations and in financialtransactions and reporting. 7 We will continue to monitor this situation and make neededrecommendations.

FINANCIAL STATEMENT AND BUDGET DECISIONS:ADDING THE LONG-TERM PERSPECTIVE

When the government is able to produce them, reliable consolidated financial statementswill be a valuable tool for analyzing the government’s financial condition. They will alsohelp inform budget deliberations by providing additional information beyond thatprovided in the budget on the long-term cost implications for a wide range of governmentprograms. The largely cash-based budget and the financial statements offer differentperspectives which, when combined, can provide a fuller view of the costs of agencyprograms and of the government’s commitments.

A view of the long-term sustainability of fiscal policies can also be helpful todecisionmakers considering the government’s financial position and making decisionsabout resource allocation. Such a picture requires projections of spending and revenuesinto the future. In this context, the sovereign power to tax and the implied commitmentsof social insurance programs—such as Social Security and Medicare—must beconsidered in addition to those items that are quantified in the financial statements. Forexample, if the combined Social Security trust funds’ disbursements exceed receipts, ascurrently estimated to occur in 2012, the government’s financing needs will increase.Since 1992, in a series of long-term simulations, we have analyzed various fiscal policyalternatives and their long-term sustainability. 8

7 Year 2000 Computing Crisis: Strong Leadership and Effective Public/PrivateCooperation Needed to Avoid Major Disruptions (GAO/T-AIMD-98-101).

8 The most recent of these reports are Budget Issues: Long-Term Fiscal Outlook(GAO/T-AIMD/OCE-98-83, February 25, 1998) and Budget Issues: Analysis ofLong-Term Fiscal Outlook (GAO/AIMD/OCE-98-19, October 22, 1997).

B-279169



FINANCIAL MANAGEMENTIMPROVEMENTS UNDERWAY

The executive branch recognizes the extent and severity of the financial managementdeficiencies discussed in this report and that addressing them will require concertedimprovement efforts across government. Financial management has been designated oneof the President’s priority management objectives, with the goal of having performanceand cost information in a timely, informative, and accurate way, consistent with federalaccounting standards. Also, the administration has made a commitment to completeaudits and gain unqualified opinions for all CFO Act agencies and the government as awhole.

To help achieve this goal, strategies are being established involving specific agencies. Forexample, plans at the Department of Defense include completing a new accountingsystems architecture, reviewing inventory accounting processes, and developing adepartmentwide property accountability system. Treasury and OMB are developing plansto improve the accuracy and timeliness of governmentwide accounting and reporting.

OMB is also working with individual agencies to address problems precludingunqualified audit opinions, which will require the active involvement of individualagency IGs as well. We will continue to focus on financial systems and internal controldeficiencies at particular agencies. For example, we have issued a series of reports 9 onthe factors to be considered and the data that must be available to meet accountingstandards for Defense’s environmental and disposal liabilities. Also, we plan to furtherevaluate Defense’s property and logistical systems to recommend additional correctiveactions to address weaknesses in accounting for major asset categories on the financialstatements. We are also working with the major credit agencies to improve reporting ofloans and loan guarantees.

9 Financial Management: Factors to Consider in Estimating Environmental Liabilitiesfor Removing Hazardous Materials in Nuclear Submarines and Ships(GAO/AIMD-97-135R, August 7, 1997), Financial Management: DOD’s Liability forAircraft Disposal Can Be Estimated (GAO/AIMD-98-9, November 20, 1997), FinancialManagement: DOD’s Liability for the Disposal of Conventional Ammunition Can BeEstimated (GAO/AIMD-98-32, December 19, 1997), and Financial Management:DOD’s Liability for Missile Disposal Can Be Estimated (GAO/AIMD-98-50R, January7, 1998).

B-279169



B-279169

In addition, the coordinated efforts of Treasury and OMB will be required to identify andprovide solutions for certain governmentwide deficiencies, such as the inability toproperly identify and eliminate transactions between federal entities. We will continue toprovide suggestions for resolving governmentwide problems and to monitor progress inovercoming them.

Philip T. CalderChief Accountant

March 20, 1998



OBJECTIVES, SCOPE, AND METHODOLOGY

The federal government is responsible for

—preparing the annual consolidated financial statements accurately and in conformitywith the basis of accounting described in note 1;

—establishing, maintaining, and assessing the internal control structure to providereasonable assurance that the broad control objectives of the Federal Managers’Financial Integrity Act 10 are met, which include (1) safeguarding assets against lossfrom unauthorized acquisition, use, or disposition, (2) ensuring the execution oftransactions in accordance with laws governing the use of budget authority and withother laws and regulations that could have a direct and material effect on theconsolidated financial statements or that are listed in OMB’s audit guidelines 11 andcould have a material effect on the consolidated financial statements, and (3)recording, processing, and summarizing transactions to permit the preparation ofreliable financial statements and to maintain accountability for assets; and

—complying with applicable laws and regulations.

Our objective was to audit the federal government’s fiscal year 1997 consolidatedfinancial statements.

The Government Management Reform Act (GMRA) expanded on the requirements of theCFO Act by requiring that the IGs of 24 major federal agencies annually auditagencywide financial statements prepared by these agencies. 12 Our work was performedin close coordination and cooperation with the IGs to achieve our joint audit objectives.This work included separate GAO audits of certain material agency components asdiscussed below. A significant portion of our work was performed at the Departments ofthe Treasury, Defense, and Health and Human Services, and the Social SecurityAdministration. These agencies comprise a major portion of the amounts reported in thefederal government’s consolidated financial statements. At other federal agencies, wefocused largely on accounts that are material to the consolidated financial statements. We

10 The Federal Managers’ Financial Integrity Act requires agency managers to evaluateand report annually to the President and the Congress on the adequacy of their internalcontrols and accounting systems and what is being done to correct the problems.

11 OMB Bulletin 93-06, Audit Requirements for Federal Financial Statements, January 8,1993.

12 GMRA authorized OMB to designate agency components that also would receive afinancial statement audit.

APPENDIX APPENDIX



performed sufficient audit work to provide our report on the consolidated financialstatements, internal controls, and compliance with laws and regulations.

We separately audited the following material agency components

—We audited and expressed an unqualified opinion on the IRS custodial financialstatements for fiscal year 1997. These financial statements reported over $l.6 trillion oftax revenue, $142 billion of tax refunds, and $28 billion of net federal taxesreceivable. 13

—We audited and expressed an unqualified opinion on the Schedule of Federal DebtManaged by Treasury’s Bureau of the Public Debt. 14 This schedule reported (1) $3.8trillion of federal debt held by the public comprising individuals, corporations, state orlocal governments, the Federal Reserve System, and foreign governments and centralbanks, (2) $1.6 trillion of federal debt held by federal entities, such as the SocialSecurity trust funds, and (3) $246 billion of interest on federal debt held by the public.

—We performed audit procedures on cash balances maintained and internal controlsover the cash receipts and disbursements processed by Treasury on behalf of thefederal government.

We provided the results of our work at Treasury to the Treasury Office of InspectorGeneral for consideration in its audit of Treasury’s fiscal year 1997 departmentwidefinancial statements.

—We audited and expressed unqualified opinions on the December 31, 1997, financialstatements of the Bank Insurance Fund and on the December 31, 1996, financialstatements for all of the funds administered by the Federal Deposit InsuranceCorporation (FDIC). 15 We also performed additional audit procedures on FDIC’sbalances at September 30, 1997.

APPENDIX APPENDIX

13 Financial Audit: Examination of IRS’ Fiscal Year 1997 Custodial Financial Statements(GAO/AIMD-98-77, February 26, 1998).

14 Financial Audit: Examination of the Bureau of the Public Debt’s Fiscal Year 1997Schedule of Federal Debt (GAO/AIMD-98-65, February 27, 1998).

15 Financial Audit: Bank Insurance Fund’s 1997 Financial Statements (B-279515, March25, 1998) and Financial Audit: Federal Deposit Insurance Corporation’s 1996 and 1995Financial Statements (GAO/AIMD-97-111, June 30,1997).



We also made significant preparations for the fiscal year 1997 audit work, including thefollowing.

—At the Department of the Treasury, we conducted audits of IRS’s financial statementssince fiscal year 1992 and conducted the initial financial statement audits of the U.S.Customs Service.

—At the Department of Health and Human Services, we worked closely with the IG intesting Medicare and Medicaid expenditures for fiscal year 1996, which resulted in the IGreporting an estimated $23 billion of improper Medicare fee-for-service payments.

—At the Department of Defense, we conducted initial financial audits at the militaryservices over a period of several years. Also, leading up to the fiscal year 1997 audit, weassessed progress in resolving weaknesses, including those related to disbursements,inventories, and property and equipment.

—At the Social Security Administration, we focused our efforts on key areas such asbenefit expenditures, computer controls, and actuarial projections.

—At these and other agencies, we reviewed the fiscal year 1996 financial statementaudits performed by the IGs or their contractors and, for certain agencies, assisted in thedevelopment of audit plans for fiscal year 1997 audits.

Agency-level financial statements and audit reports for the agencies covered by the CFOAct provide additional information about the operations of each of these entities. Forexample, these audits have identified numerous internal control and accounting systemsweaknesses and noncompliance, many of which are material to the respective agencies orcomponents. Further, as of the completion of our field work, several agencies receivedunqualified opinions on fiscal year 1997 financial statements. These agencies are the:

—Social Security Administration.—National Aeronautics and Space Administration.—Nuclear Regulatory Commission.—Department of Energy.—General Services Administration.—Department of Labor.—Small Business Administration.—Environmental Protection Agency.

APPENDIX APPENDIX



United States Government Consolidated Financial Statements for the year ended September 30, 1997

Balance sheet

This statement shows the operatingassets of the Government that were ac-quired under fiscal 1997, and prior yearbudgets; and which remain available asresources to supply Government goodsand services in the future. It also showsthe Government’s operating liabilitiesincluding debt held by the public. It in-cludes some liabilities that have not yetbeen funded by appropriations. Thenet position shown in the statement re-flects operating assets less liabilities.

The balance sheet does not includevalues for certain assets or future re-sponsibilities under social insurance pro-grams such as Social Security andMedicare. Excluded assets include landnot used in general operations, naturalresources and assets held solely fortheir historical, cultural or artistic sig-nificance. The balance sheet also doesnot reflect the Government’s power totax. Deferred maintenance is notshown this year but will be disclosed infuture years after agencies implement

the new accounting standard requiringsuch information.

The stewardship reporting sectionprovides information on the Govern-ment’s future responsibilities for socialinsurance and on the Government’sland not used in general operations. Anexplanation of the nature of the socialinsurance trust funds is included inNote 16 together with informationabout the receipts, disbursements andassets of the major social insurancetrust funds. The stewardship reportingsection will be expanded in futureyears to disclose additional informationrequired by recently approved account-ing standards.

The line item “commitments andcontingencies” is display ed to informthe reader that a note disclosure is pre-sented, relating to certain existing con-ditions, situations or sets ofcircumstances involving uncertainty asto possible gain or loss. The amountsstated there are in terms of maximumtheoretical risk exposure. However, itis not likely that the maximum losswill be incurred.

30 Consolidated Financial Statements


United States GovernmentConsolidated Balance Sheetas of September 30, 1997

(In billions of dollars)

Assets:

Cash and other monetary assets (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . 92.7

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.2

Loans receivable (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156.2

Taxes receivable (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.1

Inventories and related property (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . 209.4

Property, plant and equipment (Note 6). . . . . . . . . . . . . . . . . . . . . . . . . . . 1,017.0

Other assets (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.9

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,601.5

Liabilities and net position:

Accounts payable (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97.7

Federal debt securities held by the public (Note 9) . . . . . . . . . . . . . . . . . 3,768.2

Federal employee and veteran benefits payable (Note 10). . . . . . . . . . 2,243.7

Environmental liabilities (Note 11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211.7

Benefits due and payable (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77.7

Loan guarantee liabilities (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.7

Other liabilities (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168.8

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,604.5

Commitments and contingencies (Note 14)

Net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5,003.0

Total liabilities and net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,601.5

The accompanying notes are an integral part of these financial statements.

Consolidated Financial Statements 31


Statement of net cost

This statement shows the net costof Government operations for fiscal1997, which is funded by taxation orthrough Federal borrowing. The state-ment reflects the cost incurred to carryout the national priorities as deter-mined by law.

Cost is divided among major func-tions, which are the same as in thebudget except that the allocation ofcost to the functions is based on ac-counting standards. Thus, cost are re-ported on an accrual basis and allocateddifferently than in the budget. For ex-ample, the cost of pensions and retireehealth benefits are allocated among allthe functions that employ workersrather than as a subfunction in the in-come security function. A descriptionof each of the functions and the compo-nent of net cost for the activities in-cluded in such function is locatedimmediately following the statement.

The statement contains the follow-ing three components for each function:The gross cost of Government opera-tions; the revenues earned from the pub-lic for goods and services; and the netcost of Government operations, which isthe gross cost less the revenue earned.

Gross cost

Gross cost includes the full cost ofthe functions. These costs may be di-rectly traced, assigned on a cause and ef-fect basis or reasonably allocated to thefunction.

Earned revenue

These are revenues that the U.S.Government has earned by providinggoods and services to the public at aprice.

Net cost

The net cost of Government opera-tions is the gross cost less the relatedrevenues.



United States GovernmentConsolidated Statement of Net Cost for the year ended September 30, 1997

(In billions of dollars) Gross costEarned

revenue Net cost

National defense . . . . . . . . . . . . . . . . . . . . . . . . . 251.9 18.4 233.5

Human resources:

Education, training, employment and social services. . . . . . . . . . . . . . . . . . . . . . . 46.6 2.2 44.4

Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125.5 1.2 124.3

Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207.7 20.5 187.2

Income security. . . . . . . . . . . . . . . . . . . . . . . . . . . 187.9 8.8 179.1

Social Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364.1 - 364.1

Veterans benefits and services. . . . . . . . . . . . . . 36.1 2.2 33.9

Total human resources . . . . . . . . . . . . . . . . . . . 967.9 34.9 933.0

Physical resources:

Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.0 12.8 5.2

National resources and environment . . . . . . . . 29.1 1.9 27.2

Commerce and housing credit . . . . . . . . . . . . . 86.7 72.4 14.3

Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.4 2.4 35.0

Community and regional development . . . . . . 12.2 1.9 10.3

Total physical resources . . . . . . . . . . . . . . . . . . 183.4 91.4 92.0

Net interest:

Treasury securities held by the public . . . . . . . 246.1 -.0 246.1

Other functions:

International affairs . . . . . . . . . . . . . . . . . . . . . . . . 24.8 5.3 19.5

General science, space and technology. . . . . 16.8 0.1 16.7

Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 2.5 12.6

Administration of justice. . . . . . . . . . . . . . . . . . . . 27.1 1.9 25.2

General government . . . . . . . . . . . . . . . . . . . . . . 28.0 3.3 24.7

Total other functions . . . . . . . . . . . . . . . . . . . . . 111.8 13.1 98.7

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,761.1 157.8 1,603.3




Net cost functional classification

The statement of net cost presentsinformation about the cost of the Gov-ernment’s major functions. The objec-tives of each of the functions aredescribed below.

National defenseThe cost of national defense in-

cludes the costs for providing militaryforces to (1) deter war; (2) be preparedto engage in war; and (3) preserve thepeace and security of the United States,the Territories, Commonwealth, its pos-sessions and any area occupied by theUnited States. Such costs also includetraining, equipping and compensatingthe armed forces; developing, acquir-ing, utilizing and disposing of weaponsystems; conducting research and devel-opment to maintain technological supe-riority over potential adversaries, andimproving cost and performance ofweapon systems; and other defense re-lated activities.

National defense includes changes inestimated environmental liabilities. Therevised estimates resulted in a net de-crease of $47.7 billion in environ-mental liabilities during fiscal 1997.The accompanying table depicts thechanges in estimate by category.

Human resources

Education, training, employmentand social services

The objectives of the education,training, employment and social serv-ices function are to promote the exten-sion of knowledge and skills, enhanceemployment and employment opportu-nities, protect workplace standards andprovide services to the needy.

Health

The cost of health is for promotingphysical and mental health, includingthe prevention of illness and accidents,and the Medicaid program. The Medi-care program is the largest Federalhealth program, but by law it is in aseparate subfunction for budget pur-poses. Also excluded from the healthsubfunction is Federal health care formilitary personnel and veterans.

Medicare

Medicare is composed of Federalhospital insurance and Federal supple-mentary medical insurance. This func-tion is not further subdivided intosubfunctions. For more information onMedicare, see the note on stewardship

Changes to fiscal 1996 estimates


Environmentalmanagement and

legacy wastes . . . . . . . . . 43.3Pipeline facilities . . . . . . . . . 2.7Active facilities . . . . . . . . . . 1.4High-level waste andspent nuclear fuel . . . . . . .

-0.1

Other changes in estimates . . . . . . . . . . . . 0.4Total changes in

estimates . . . . . . . . . . . . 47.7

Education, training, employment and social services(In billions of dollars)

Subfunctions Gross costEarned

revenue Net cost

Elementary, secondary and vocational education . . . . . . . . . . . . . 14.5 - 14.5

Higher education . . . . . . . . . . . . . . . . . . 7.1 2.2 4.9Research and general

education aids . . . . . . . . . . . . . . . . . . . 1.9 - 1.9Training and employment . . . . . . . . . . . 4.9 - 4.9Other labor services . . . . . . . . . . . . . . . . 0.9 - 0.9Social services . . . . . . . . . . . . . . . . . . . . . 16.3 - 16.3Cost not allocated to subfunctions . . . 1.0 -.0 1.0

Total education, training,employment and social services . . 46.6 2.2 44.4



responsibility in the stewardship report-ing section and Note 16.

Income security

This includes the cost of providingpayments to persons for whom no cur-rent service is rendered. Included aredisability , unemployment, welfare andsimilar programs, except for Social Se-curity and income security for veter-ans. Also included are (1) the foodstamp, special milk and child nutritionprograms; (2) unemployment compensa-tion and workers’ compensation;(3)public assistance cash payments; (4)

benefits to the elderly and to coal min-ers; and (5) low- and moderate-incomehousing benefits. The cost of Federalpensions and retiree health benefits areallocated to other functions.

Social Security

The cost of Social Security is forpayments to eligible beneficiaries of theOld Age and Survivors Insurance andDisability Insurance programs, whichare collectively referred to as “Social Se-curity.” The Social Security program is

Health(In billions of dollars)


revenue Net cost

Health care services . . . . . . . . . . . . . . . . 120.8 4.5 116.3Health research and training . . . . . . . . 2.6 0.7 1.9Consumer and occupational

health and safety. . . . . . . . . . . . . . . . . 2.0 0.1 1.9 Cost not allocated to subfunctions . . . 0.1 -4.1 4.2

Total health . . . . . . . . . . . . . . . . . . . . . . 125.5 1.2 124.3

Income security(In billions of dollars)


revenue Net cost

Unemployment compensation. . . . . . . 24.4 1.2 23.2Housing assistance . . . . . . . . . . . . . . . . . 27.4 - 27.4Food and nutritional assistance . . . . . . 36.4 - 36.4General retirement and

disability insurance. . . . . . . . . . . . . . . . 15.5 3.5 12.0Other income security . . . . . . . . . . . . . . 73.2 2.9 70.3Cost not allocated to subfunctions . . . 11.0 1.2 9.8

Total income security . . . . . . . . . . . . . 187.9 8.8 179.1

Veterans benefits and services(In billions of dollars)


revenue Net cost

Income security for veterans. . . . . . . . . 8.3 0.9 7.4Veterans education, training

and rehabilitation . . . . . . . . . . . . . . . . 1.8 - 1.8Hospital and medical care for

veterans . . . . . . . . . . . . . . . . . . . . . . . . 16.3 0.5 15.8Veterans housing . . . . . . . . . . . . . . . . . . 0.5 0.6 -0.1Other veterans benefits and services . 1.6 0.2 1.4Cost not allocated to subfunctions . . . 7.6 -.0 7.6

Total veterans benefits and services . . . . . . . . . . . . . . . . . . . 36.1 2.2 33.9



the single largest Federal program andis funded primarily by payroll taxes.

For more information on Social Se-curity, see the note on stewardship re-sponsibility in the stewardshipreporting section and Note 16.

Veterans benefits and services

These programs provide benefitsand services, the eligibility for which isrelated to prior military service. In-cluded are veteran’s compensation, lifeinsurance, pensions, burial benefits, edu-cation, training, medical care, veteranshousing and administrative expenses ofthe Department of Veterans Affairs.

Physical resources

Energy

The objective is to promote an ade-quate supply and appropriate use of en-ergy to serve the needs of the economy.

Natural resources and environment

These costs are incurred for develop-ing, managing and maintaining the na-tion’s natural resources and

environment. Excluded are the cost forcommunity water supply programs, ba-sic sewer systems and waste treatmentplants, all of which are part of commu-nity or regional development programs.

Commerce and housing credit

These costs relate to the promotionand regulation of commerce, housing,and deposit insurance industries, whichpertain to (1) collection and dissemina-tion of social and economic data; (2)general purpose subsidies to businessand individuals including credit subsi-dies to housing; and (3) the Postal Serv-ice fund.

Transportation

Most of these costs relate to grantsto States and others for local or na-tional transportation of passengers andproperty. These costs include: (1) con-struction of facilities; (2) purchase ofequipment; (3) research, testing andevaluation; and (4) operating subsidiesfor transportation facilities (such as air-ports and railroads).

Energy(In billions of dollars)


revenue Net cost

Energy supply . . . . . . . . . . . . . . . . . . . . . 15.4 11.8 3.6Energy conservation. . . . . . . . . . . . . . . . 0.5 - 0.5Emergency energy preparedness . . . . 0.2 0.3 -0.1Energy information, policy and

regulation . . . . . . . . . . . . . . . . . . . . . . . 0.7 - 0.7Cost not allocated to subfunctions . . . 1.2 0.7 0.5

Total energy . . . . . . . . . . . . . . . . . . . . . 18.0 12.8 5.2

Natural resources and environment(In billions of dollars)


revenue Net cost

Water resources . . . . . . . . . . . . . . . . . . . 6.8 0.1 6.7Conservation and land management 6.1 0.9 5.2Recreational resources . . . . . . . . . . . . . 2.6 0.2 2.4Pollution control and abatement . . . . . 6.8 0.3 6.5Other natural resources . . . . . . . . . . . . . 2.5 0.2 2.3Cost not allocated to subfunctions . . . 4.3 0.2 4.1

Total natural resources andenvironment. . . . . . . . . . . . . . . . . . . . 29.1 1.9 27.2



Community and regionaldevelopment

These costs relate to the develop-ment of physical facilities or financialinfrastructures designed to promote vi-able community economies. Transporta-tion facilities developed as integralparts of community development pro-grams are also included. Aid to busi-nesses is not usually included in thisfunction unless such aid promotes theeconomic development of depressed ar-eas and is not designed to promote par-ticular lines of business for their ownsake.

Net interestInterest costs are primarily the

amounts accrued on Treasury securitiesheld by the public. Interest payments

on these securities are made by theTreasury’s Bureau of Public Debt.

Other functions

International affairs

This function includes the cost ofmaintaining peaceful relations, com-merce and travel between the UnitedStates and the rest of the world, andpromoting international security andeconomic development abroad.

General science, space andtechnology

This function includes the researchconducted by the National ScienceFoundation, all space programs con-ducted by the National Aeronauticsand Space Administration (NASA) and

Community and regional development(In billions of dollars)


revenue Net cost

Community development . . . . . . . . . . . 4.9 - 4.9Area and regional development . . . . . 2.1 0.5 1.6Disaster relief and insurance . . . . . . . . . 4.6 1.4 3.2Cost not allocated to subfunctions . . . 0.6 -.0 0.6

Total community and regional development. . . . . . . . . . . . . . . . . . . 12.2 1.9 10.3

Commerce and housing credit(In billions of dollars)


revenue Net cost

Mortgage credit . . . . . . . . . . . . . . . . . . . 3.0 5.5 -2.5U.S. Postal Service . . . . . . . . . . . . . . . . . . 56.9 58.4 -1.5Deposit insurance . . . . . . . . . . . . . . . . . . -2.5 5.9 -8.4Other advancement of commerce. . . 5.5 14.1 -8.6Cost not allocated to subfunctions . . . 23.8 -11.5 35.3

Total commerce and housing credit 86.7 72.4 14.3

Transportation(In billions of dollars)


revenue Net cost

Ground transportation . . . . . . . . . . . . . . 24.6 1.7 22.9Air transportation . . . . . . . . . . . . . . . . . . 6.6 0.1 6.5Water transportation . . . . . . . . . . . . . . . -0.5 0.6 -1.1Other transportation. . . . . . . . . . . . . . . . 0.2 - 0.2Cost not allocated to subfunctions . . . 6.5 -.0 6.5

Total transportation . . . . . . . . . . . . . . . 37.4 2.4 35.0



general science research supported bythe Department of Energy.

Agriculture

These costs are for promoting theeconomic stability of agriculture andthe nation’s capability to maintain andincrease agricultural production.

Administration of justice

These costs include programs to pro-vide judicial services, police protection,

law enforcement (including civilrights), rehabilitation and incarcerationof criminals, and the general mainte-nance of domestic order. It includes theprovision of court-appointed counselor other legal services for individuals.It excludes the cost of the legislativebranch and police or guard activities toprotect Federal property. The cost ofNational Guard personnel and militarypersonnel who are called upon occasion-ally to maintain public safety and thecost of military police are included un-

General science, space and technology(In billions of dollars)


revenue Net cost

General science and basic research . 3.8 - 3.8Space flight, research and

supporting activities. . . . . . . . . . . . . . . 12.3 0.1 12.2Cost not allocated to subfunctions . . . 0.7 -.0 0.7

Total general science, space and technology . . . . . . . . . . . . . . . . 16.8 0.1 16.7

Agriculture(In billions of dollars)


revenue Net cost

Farm income stabilization . . . . . . . . . . . 10.6 2.2 8.4Agricultural research and service. . . . . 3.5 0.3 3.2Cost not allocated to subfunctions . . . 1.0 -.0 1.0

Total agriculture . . . . . . . . . . . . . . . . . . 15.1 2.5 12.6

International affairs(In billions of dollars)


revenue Net cost

International development and humanitarian assistance . . . . . . . . . . . 10.7 3.1 7.6

International security assistance. . . . . . 2.2 - 2.2Conduct of foreign affairs . . . . . . . . . . . 5.1 0.3 4.8Foreign information and exchange

activities . . . . . . . . . . . . . . . . . . . . . . . . - - -International financial programs. . . . . . 3.8 1.2 2.6Cost not allocated to subfunctions . . . 3.0 0.7 2.3

Total international affairs. . . . . . . . . . . 24.8 5.3 19.5



General government(In billions of dollars)


revenue Net cost

Legislative functions . . . . . . . . . . . . . . . . 1.2 - 1.2Executive direction

and management. . . . . . . . . . . . . . . . 0.3 - 0.3Central fiscal operations . . . . . . . . . . . . 8.3 2.2 6.1General property and records

management . . . . . . . . . . . . . . . . . . . . 10.1 0.3 9.8Central personnel management . . . . . 0.2 - 0.2General purpose fiscal assistance . . . . 0.3 - 0.3Other general government . . . . . . . . . . 0.9 0.1 0.8Cost not allocated to subfunctions . . . 6.7 0.7 6.0

Total general government . . . . . . . . . 28.0 3.3 24.7

der the national defense function ratherthan this function.

General government

These costs include the general over-head of the Federal Government, in-

cluding legislative and executive activi-ties, and provision of central fiscal, per-sonnel and property activities. Allactivities reasonably or closely associ-ated with other functions are includedin those functions rather than generalgovernment.

Administration of justice(In billions of dollars)


revenue Net cost

Federal law enforcement activities . . . 13.2 1.1 12.1Federal litigative and

judicial activities . . . . . . . . . . . . . . . . . 5.9 - 5.9Federal correctional activities. . . . . . . . 3.3 0.3 3.0Criminal justice assistance . . . . . . . . . . . 1.3 0.4 0.9Cost not allocated to subfunctions . . . 3.4 0.1 3.3

Total administration of justice. . . . . . . 27.1 1.9 25.2



Statement of changesin net position

The statement of changes in net posi-tion reports the beginning net position,the items that caused net position tochange during the reporting period andthe ending net position. It shows the netcost of Government operations, reve-nues generated principally by the Gov-ernment’s sovereign power to tax, levyduties, and assess fines and penalties, aswell as any adjustments and unrecon-ciled transactions that affect the net posi-tion.

Net cost of Government operations

Net cost of Government operationsis the cost of operations reported in thestatement of net cost.

Revenues: financing sources from non-exchange revenue

The main financing source for thenet cost of operations is non-exchange

revenue, which consists of taxes andother revenue that the Federal Govern-ment generates under its governmentalpowers or receives by donation.

Other earned revenue

Other earned revenues are exchangerevenues from the public with virtuallyno cost associated with these earnings.These items include revenues from spec-trum auctions and rents and royalties onthe outer continental shelf lands.

Unreconciled transactions

Unreconciled transactions are adjust-ments made to balance the change in netposition.

Net position–beginning of period

The amount is the net position re-ported as of the beginning of the fiscalyear.

Net position–end of period

This is the amount reported as net po-sition on the current year’s balance sheet.



United States GovernmentConsolidated Statement of Changes in Net Positionfor the year ended September 30, 1997


Net cost of Government operations. . . . 1,603.3

Less:

Financing sources from non-exchange revenues:

Individual income tax and tax withholdings . . . . . . . . . . . . . . . . . . . 1,247.5

Corporation income taxes . . . . . . . . . . . 179.8

Unemployment taxes . . . . . . . . . . . . . . . . 27.8

Excise taxes . . . . . . . . . . . . . . . . . . . . . . . . 55.8

Estate and gift taxes. . . . . . . . . . . . . . . . . 19.7

Customs duties . . . . . . . . . . . . . . . . . . . . . 20.0

Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 26.1

Total non-exchange revenues . . . . . . . 1,576.7

Other earned revenues . . . . . . . . . . . . . . 11.6

Excess of costs over revenuesbefore unreconciled transactions. . . . -15.0

Unreconciled transactions affecting the change in net position (Note 15) . 12.4

Change in net position. . . . . . . . . . . . . . . -2.6

Net position-beginning of period. . . . . -5,000.4

Net position-end of period . . . . . . . . . . -5,003.0




United States GovernmentNotes to the Financial Statementsfor the year ended September 30

Note 1 . Summary ofsignificant accounting policies

A. Reporting entityThe consolidated financial state-

ments include the financial status and ac-tivity of the executive, legislative andjudicial branches of the U.S. Govern-ment, including those Government cor-porations that are part of the FederalGovernment. The Appendix contains alist of significant U.S. Government enti-ties included and entities excluded fromthese consolidated financial statements.For the purposes of this document,“Federal Government” refers to theU.S. Government. The fiscal year of theU.S. Government ends September 30.Material intragovernmental transactionshave been eliminated in consolidation,except as described in Note 15.

B. Basis of accountingThe consolidated financial state-

ments have been prepared in accordancewith Form and Content guidance speci-fied by the Office of Management andBudget (OMB) and the Statements ofFederal Financial Accounting Standards(SFFAS). Under this basis of account-ing, expenses generally are recognizedwhen incurred and non-exchange reve-nues are recognized on a modified cashbasis of accounting. Remittances of non-exchange revenues are recognized whenreceived and related receivables are rec-ognized when measurable and legallycollectible. Refunds and related offsetsof non-exchange revenues are recog-nized when measurable and legally pay-able. Exchange revenues are recognizedwhen earned. This basis of accountingdiffers from the basis of accounting usedfor budgetary reporting. Beginning infiscal 1998, four additional accountingstandards will be effective regarding ac-counting for property, plant and equip-ment, managerial cost accounting,revenue and other financing sources,and supplementary stewardship report-ing. The impact of these standards onthe consolidated financial statements iscurrently being reviewed.

C. Direct loansand loan guarantees

Direct loans obligated and loan guar-antees committed after September 30,1991, are recorded based on the presentvalue of net cash flows estimated overthe life of the loan or guarantee. Directloans made prior to October 1, 1991,may be recorded under the presentvalue method or the allowance for lossmethod (the outstanding principal re-duced by an allowance for uncollectibleamounts when it is more likely thannot that the loans will not be collectedin full). Liabilities related to loan guaran-tees committed prior to October 1,1991, may be recorded under the pre-sent value method or the allowance forloss method (the amount the agency esti-mates will more likely than not requirea future cash outflow to pay defaultclaims).

D. Taxes receivable

“Taxes receivable” primarily consistof uncollected tax assessments, penaltiesand interest, where taxpayers haveagreed that the amounts are owed or acourt has determined that the assess-ments are owed. Unpaid assessmentswhere (1) neither taxpayers nor a courthave agreed that the amounts are owed(compliance assessments); and (2) theGovernment does not expect furthercollections due to factors such as the tax-pay er’s death, bankruptcy or insolvency(write-offs) are not included in the finan-cial statements. Taxes receivable are re-ported net of an allowance for theestimated portion of the taxes receivabledeemed to be uncollectible.

E. Inventories andrelated property

Inventories generally are valued athistorical cost or at an approximationthereof. Historical cost methods includefirst-in-first-out, weighted average andmoving average. The value of inventoryheld for repair is reduced by the esti-mated repair cost. Excess, obsolete and

Notes to the Financial Statements 43


unserviceable inventories are valued atestimated net realizable values.

F. Property, plant andequipment

“Property , plant and equipment”(PP&E) are recorded using purchaseprice, replacement cost, standard costand other acceptable methods. Defenseweapons systems, which comprise mostof the PP&E, are not currently depreci-ated. Depreciation and amortization ex-pense, which applies to other PP&E,except land and limited duration landrights and construction in progress, aregenerally recognized using the straight-line method over the assets estimateduseful lives. The Government Manage-ment Reform Act does not require thelegislative and judicial branches to re-port their financial information toTreasury, therefore most PP&E in useby those entities is not included in theseconsolidated financial statements.

G. Retirement programs

“Pension expense and retirementhealth benefits” and related liabilitiesare recorded during the time that em-ployee services are rendered. The liabili-ties for defined benefit pension plansand retirement health benefits are re-corded at estimated actuarial presentvalue of future benefits, less the esti-mated actuarial present value of normalcost contributions made by, and for cov-ered employ ees.

“Normal cost” is the portion of theactuarial present value of projected bene-fits allocated, under the actuarialmethod, as expense for employee serv-ices rendered in the current year. Actu-arial gains and losses (and prior and pastservice cost, if any) are recognized im-mediately in the year they occur, with-out amortization.

H. Environmental liabilities

“Environmental liabilities” are re-corded at the estimated current cost toremediate hazardous waste and environ-mental contamination, assuming the useof current technology. Remediation con-sists of removal, treatment and/or safecontainment. Where technology doesnot exist to clean up hazardous waste,only the estimable portion of the liabil-

ity, typically safe containment, is re-corded.

I. Contingencies Liabilities are recognized on the bal-

ance sheet when:

• a past transaction or event has oc-curred; and

• a future outflow or other sacrifice ofresources is probable and measurable.

The estimated contingent liabilitymay be a specific amount or a range ofamounts. If some amount within therange is a better estimate than any otheramount within the range, that amountis recognized. If no amount within therange is a better estimate than any otheramount, the minimum amount in therange is recognized.

Contingent liabilities that do notmeet the above criteria for recognition,but for which there is a reasonable possi-bility that a loss has been incurred aredisclosed in Note 14.

For the fiscal year ended September30, 1997, the amount of loss contingen-cies was not available therefore, theamounts stated here represent the maxi-mum theoretical risk exposure. How-ever, it is not likely that the maximumloss will be incurred.

J. Social insuranceA liability for social insurance pro-

grams (Social Security, Medicare, Unem-ployment Insurance, RailroadRetirement and Black Lung) is recog-nized for any unpaid amounts due as ofthe reporting date. No liability is recog-nized for future payments not yet due.See “stewardship responsibilities” in thestewardship reporting section for fur-ther information.

K. Related party transactionsThe Federal Reserve Banks (FRBs),

which are not part of the reporting en-tity, serve as the Federal Government’sdepositary and fiscal agent. They proc-ess Federal payments and deposits toTreasury’s account and service Federaldebt securities. FRBs owned $440 bil-lion of Federal debt securities held bythe public as of September 30, 1997.FRB earnings that exceed statutoryamounts of surplus established for theFederal banks are paid to the Federal

44 Notes to the Financial Statements


Government and are recognized as non-exchange revenue and totaled $19.6 bil-lion for the y ear ended September 30,1997. The primary source of these earn-ings is from interest earned on Federaldebt securities held by the FRBs.

FRBs issue Federal Reserve Notes,which are the circulating currency ofthe United States. These notes are collat-eralized by specific assets owned by theFRBs, typically U.S. Government secu-rities. Federal Reserve Notes are backedby the full faith and credit of theUnited States Government.

The Federal Government does notguarantee payment of the liabilities ofGovernment-sponsored enterprises suchas the Federal National Mortgage Asso-ciation of the Federal Home Loan Mort-gage Association, which also areexcluded from the reporting entity .

Note 2. Cash and othermonetary assets

Cash

Cash in the amount of $45.7 billion,consists of: (1) U.S. Treasury balancesheld at the Federal Reserve banks, netof outstanding checks; (2) U.S. Treasurybalances in special depositaries that holdthe proceeds of certain tax paymentsknown as the U.S. Treasury Tax andLoan Note accounts; (3) funds held out-side of Treasury and the Federal Re-serve by authorized fiscal officers oragents; (4) monies held by Governmentcollecting and disbursing officers, agen-cies’ undeposited collections, uncon-

firmed deposits and cash transfers; and(5) time deposits at financial institutions.

The U.S. Government maintains for-mal arrangements with numerous banksto maintain time deposits known ascompensating balances. These balancescompensate the banks for services pro-vided to the Federal Government, suchas maintaining zero-balance accountsfor the collection of public monies.

Gold

Gold is valued at the statutory priceof $42.2222 per fine troy ounce. As ofSeptember 30, 1997, the number of finetroy ounces was 260,914,524.931. In thefiscal year ended September 30, 1996,gold was valued using market value,which represented the price reportedfor gold on the London Fixing. Themarket value of gold as of the reportingdate is $332.10 per fine troy ounce.Gold has been pledged as collateral forgold certificates issued to the Federal Re-serve banks totaling $11.0 billion (seeNote 13).

Domestic monetary assets

“Domestic monetary assets” arecomposed of liquid assets other thancash that are based on the U.S. dollar in-cluding coins, silver bullion and othercoinage metals. These items totaled $0.4billion.

International monetary assets

“International monetary assets” arecomposed of liquid assets that are de-nominated on a basis other than theU.S. dollar. Special Drawing Rights(SDRs) are international reserve assetscreated by the International MonetaryFund (IMF), which have a U.S. dollarequivalent of $10.0 billion calculated ona weighted average of exchange rates forthe currencies of selected IMF membercountries. The value of a SDR was$1.36521, as of September 30, 1997.SDRs have been pledged as collateralfor borrowing from the Federal Reservebanks. This liability totals $9.2 billionand is included in Note 13. These assetsalso include the U.S. reserve position inthe IMF, which has a U.S. dollar equiva-lent of $14.0 billion, and foreign cur-rency and other monetary assetsdenominated in foreign currency. Inter-national monetary assets have a U.S. dol-lar equivalent of $35.6 billion.

Cash and other monetary assetsas of September 30


Cash before outstanding checks . . . . . 49.6

Outstanding checks . . . . . . -3.9Cash. . . . . . . . . . . . . . . . . . 45.7Gold . . . . . . . . . . . . . . . . . . 11.0Domestic monetary

assets . . . . . . . . . . . . . . . . 0.4International

monetary assets . . . . . . . 35.6Total cash and other

monetary assets. . . . . . 92.7



Note 3. Loans receivable and loan guarantee liabilities

Loans receivable

The Federal Government is the na-tion’s largest source of credit and under-writer of risk. In 1990, the FederalCredit Reform Act was enacted to im-prove the Government’s budgeting andmanagement of credit programs. Theprimary focus of the Act is to providean accurate measure of the long-termcosts of both direct loans and loan guar-antees and to recognize these costs atthe time when the loan is made.

The Direct Student Loan program,established in 1994, offers four ty pes ofeducation loans: Stafford, UnsubsidizedStafford, PLU S for parents and Consoli-dation. Evidence of financial need is re-quired for a students to receivesubsidized Stafford loans. The otherthree loan programs are available to bor-rowers at all income levels. These loansusually mature 9-13 y ears after the stu-dent is no longer enrolled and are unse-cured.

Rural electrification and telecommu-nications loans are for the constructionand operation of generating plants, elec-tric transmission, and distribution linesor systems. These loans carry an aver-age maturity of greater than 20 y earsand are usually secured.

The major programs funded throughthe Rural Housing Insurance Fund Pro-gram account are: very low and low-to-moderate income home ownershiploans and guarantees, very low incomehousing repair loans, domestic farm la-bor housing loans, housing site loansand credit sales of acquired property.Loan programs are limited to rural ar-eas that include towns, villages andother places that are not part of an ur-ban area. The majority of these loansmature in excess of 25 years and are se-cured by the property of the borrower.

Economic assistance loans provideeconomic assistance to selected coun-tries in support of U.S. efforts to pro-mote stability and U.S. securityinterests in strategic regions of theworld.

Loan guarantees

The Federal Housing Administra-tion (FHA) provides mortgage insur-ance to encourage lenders to makecredit available to expand home owner-ship. FHA predominately serves bor-rowers that the conventional marketdoes not adequately serve: first timehome buy ers, minorities, lower-incomefamilies and residents of under-served ar-eas.

The Federal Family Education Loan(FFEL) program, formerly known asthe Guaranteed Student Loan program,was established in 1965. Like the DirectStudent Loan program, it also offers

Loans receivable as of September 30

(In billions of dollars)Gross

receivables

Allowancelosses

1 (pre-1992)

Allowancefor subsidy

(post-1991)Net

receivables

Student loan programs . . . . . 42.0 14.6 0.1 27.3

Rural electrification and telecommunications. . . . . . 28.3 4.8 - 23.5

Rural housing insurance . . . . 20.9 7.4 - 13.5

Economic assistance loans . 12.5 5.1 - 7.4

Agriculture credit insurance fund . . . . . . . . . . 10.7 1.5 0.6 8.6

Other loans receivable . . . . . 102.2 18.0 8.3 75.9

Total loans receivable. . . . . 216.6 51.4 9.0 156.2

1 Includes related interest



four types of loans: Stafford, Unsubsi-dized Stafford, PLUS for parents andConsolidation.

Veteran housing benefits provide par-tial guarantee of residential mortgageloans issued to eligible veterans and serv-icemen by private lenders. The guaran-tee allows veterans and servicemen topurchase a home without a substantialdown payment.

Other loan guarantees include SmallBusiness Administration loans to minor-ity businesses, Export-Import Bankloans to promote U.S. exports, and theFarm Service Agency for farm owner-ship and emergency and disaster loans.

Note 4. Taxes receivable

“Net taxes receivable” are based onprojections of collectibility from a statis-tical sample.

Note 5. Inventories and related property

“Inventories and related properties”consist of the following categories, netof allowance:

• “Operating materials and supplies,”which are comprised of tangible per-sonal property purchased for use innormal operations.

• “Stockpile materials,” which are stra-tegic and critical materials held dueto statutory requirements for use innational defense, conservation or na-tional emergencies.

• “Inventory held for sale,” which istangible personal property held forsale net of allowances.

Inventories and related property as of September 30


Operating materials and supplies. . . . . . . . . . . . 161.8

Stockpile materials. . . . . . . . 41.8Inventory held for sale. . . . . 1.7Foreclosed property . . . . . . 1.3Commodities . . . . . . . . . . . . 0.4 Seized monetary

instruments . . . . . . . . . . . . . 0.2Forfeited property . . . . . . . . 0.2Other related property . . . . 2.0

Total inventories and related property . . . 209.4Taxes receivable

as of September 30


Gross Federal tax receivables. . . . . . . . . 90.2

Allowance for doubtful amounts. . . . 62.1

Federal tax receivables, net . . . . . . . . . . . . . . . . . . 28.1

Loan guarantees as of September 30


Face value of

guaranteedloans

Amount guaranteed

Loanguarantee

liability

Federal Housing Administration . . . . . 454.5 447.0 13.1

Federal Family Education . . . . . . . . . . 99.0 99.0 9.9

Veteran housing benefits. . . . . . . . . . . 198.0 69.4 4.1

All other loan guarantees . . . . . . . . . . 125.3 97.0 9.6

Total loan guarantees . . . . . . . . . . . . 876.8 712.4 36.7



• “Foreclosed property,” which in-cludes assets received in satisfactionof a loan receivable or as a result ofpayment of a claim under a guaran-teed or insured loan (excluding com-modities acquired under pricesupport programs).

• “Commodities,” which are items ofcommerce or trade having an ex-change value used to stabilize or sup-port market prices.

• “Seized monetary instruments,”which include only monetary instru-ments. Other seized property, includ-ing real property and tangiblepersonal property, are accounted forin agency property management re-cords until the property is forfeited,returned or otherwise liquidated.

• “Forfeited property,” which is com-prised of (1) monetary instruments,intangible property, real propertyand tangible personal property ac-quired through forfeiture proceed-ings; (2) property acquired by theGovernment to satisfy a tax liability;and (3) unclaimed and abandonedmerchandise.

• “Other related property,” which in-cludes all other related property notincluded above (such as property ac-quired through military base clos-ings).

Note 6. Property, plantand equipment

Certain types of fixed assets are notreported as “property , plant and equip-ment” or elsewhere on the balancesheet. These include natural resources,stewardship land, monuments, museumcollections and library collections.FASAB standards are addressing the is-sue of these unreported assets. Futureconsolidated financial statements mayreport them as supplementary steward-ship information. Land not used in con-nection with the production of goodsand services is disclosed in the steward-ship reporting section under steward-ship land. In future financial statements,values will be removed from the bal-ance sheet for national defense “prop-erty, plant and equipment” and thestewardship reporting section of the fi-nancial statements will be expanded toinclude information about these assets.

Note 7. Other assets

Property, plant and equipment as of September 30


Cost orotherbasis

Accumulateddepreciation/amortization Net

Buildings, structures and facilities . . 281.5 64.2 217.3

Military equipment . . . . . . . . . . . . . . 637.1 1.6 635.5

Furniture, fixtures and equipment . . 110.7 33.7 77.0

Assets under capital lease . . . . . . . . 6.6 0.3 6.3

Leasehold improvements. . . . . . . . . 1.4 0.4 1.0

Automated data processing software . . . . . . . . . . . . 2.0 1.0 1.0

Land . . . . . . . . . . . . . . . . . . . . . . . . . . 22.4 - 22.4

Construction in progress . . . . . . . . . . 56.5 - 56.5

Total property, plant and equipment. . . . . . . . . . . . . . . 1,118.2 101.2 1,017.0

Other assets as of September 30


Advances and prepayments . . . . . . . . . . 24.2

Securities and investments . . . . . . . . . . . 11.4

Other . . . . . . . . . . . . . . . . . . 27.3

Total other assets. . . . . . . 62.9



“Other assets” consist of advancesand prepayments, securities and invest-ments and other assets of the U.S. Gov-ernment not otherwise classified.Securities are shown at cost net of unam-ortized premiums and discounts.

Note 8. Accounts payable“Accounts payable” are amounts

owed for accrued interest on the publicdebt, goods and other property ordered

and received, and for services renderedby other than employees.

Note 9. Federal debt securitiesheld by the public

Definitions of debt are as follows:

• “Gross Federal debt” includes Fed-eral Government debt, whether is-sued by Treasury (public debt) or byother agencies (agency debt). Gross

Federal debt securities held by the public as of September 30

(In billions of dollars)Average

interest rate

Treasury securities:Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,439.8 6.668%Non-marketable securities. . . . . . . . . . . . . . . . . . . . . . . . 1,967.7 7.235%Non-interest bearing debt . . . . . . . . . . . . . . . . . . . . . . . . 5.6

Total Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . 5,413.1Plus: Unamortized premium

on Treasury securities. . . . . . . . . . . . . . . . . . . . . . . . . 20.2Less: Unamortized discount

on Treasury’ securities . . . . . . . . . . . . . . . . . . . . . . . 78.2Total Treasury securities,

net of unamortized premiums and discounts. . . . 5,355.1

Agency securities:Tennessee Valley Authority . . . . . . . . . . . . . . . . . . . . . . . 27.4U.S. Postal Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9All other agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9Less: Unamortized net discounts . . . . . . . . . . . . . . . . . . . 0.5

Total agency securities . . . . . . . . . . . . . . . . . . . . . . . . . 32.7Total Federal debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,387.8

Less: Intragovernmental holdings, net of unamortized premiums and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,619.6Total Federal debt securities

held by the public . . . . . . . . . . . . . . . . . . . . . . . . 3,768.2

Types of marketable securitiesBills: Short-term obligations issued with a term of 1 year or less.Notes: Medium-term obligations issued with a term of at least 1 year, but not more than 10 years.Bonds: Long-term obligations of more than 10 years.

Accounts payable as of September 30


Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46.6Department of Defense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.4U.S. Postal Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8Department of Veterans Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1National Aeronautics and Space Administration. . . . . . . . . . . . . . . 3.0Office of Personnel Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8Department of Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5Department of Health and Human Services. . . . . . . . . . . . . . . . . . . 2.5All other departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.0

Total accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97.7



Federal debt is either held by thepublic or by U.S. Government enti-ties.

• “Debt held by the public” includesFederal debt held outside the U.S.Government by individuals, corpora-tions, State or local governments, theFederal Reserve System, and foreigngovernments and central banks.

• “Intragovernmental holdings” arecomprised of Federal debt held byGovernment trust funds, revolvingfunds and special funds.

“Federal debt held by the public”amounted to $3,768.2 billion at the endof fiscal 1997. The table on debt held bythe public reflects information on bor-rowing to finance Government opera-tions. Debt is shown at face value withunamortized premiums added and un-amortized discounts subtracted.

Intragovernmental holdings repre-sent that portion of the total Federaldebt securities held as investments byFederal entities, including major trust

funds. For more information on trustfunds see Note 16. Intragovernmentalholdings have been eliminated in con-solidation for financial statement presen-tation purposes.

Securities that represent debt heldby the public are primarily issued bythe Department of the Treasury and in-clude:

• Interest bearing marketable securi-ties: bills, notes and bonds.

• Interest bearing non-marketable secu-rities: foreign government series,State and local government series, do-mestic series and savings bonds.

• Non-interest bearing debt: maturedand other debt.As of September 30, 1997, most Fed-

eral debt ($5,328 billion) was subject toa statutory limit (31 U.S.C. 3101),which was $5,950 billion. The debt sub-ject to the limit includes debt held bythe public and intragovernmental hold-ings, less most debt of Federal agencies,the Federal Financing Bank debt and

Intragovernmental holdings: Federal debt securities held as investment by Government accounts as of September 30


Holdings over $100 billion:Social Security Administration,

Old Age and Survivors Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567.5Office of Personnel Management,

Civil Service Retirement and Disability . . . . . . . . . . . . . . . . . . . . . . . . 422.1Department of Defense, Military Retirement. . . . . . . . . . . . . . . . . . . . 126.0Department of Health and Human Services,

Hospital Insurance Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116.6Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,232.2

Holdings over $15 billion:Social Security Administration, Disability Insurance Trust Fund . . . . . 63.6Department of Labor, Unemployment. . . . . . . . . . . . . . . . . . . . . . . . . 61.9Federal Deposit Insurance Corporation funds . . . . . . . . . . . . . . . . . . 37.4Department of Health and Human Services,

Supplemental Medical Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.5Department of Transportation, Highway Trust Fund . . . . . . . . . . . . . . 22.3Railroad Retirement Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.2Office of Personnel Management, Employees Life Insurance . . . . . 18.0Department of the Treasury, Exchange Stabilization Fund . . . . . . . . 15.5

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272.4Other programs and funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.8

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,607.4Plus: Unamortized net premiums. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2

Total intragovernmental holdings . . . . . . . . . . . . . . . . . . . . . . . . . 1,619.6



miscellaneous debt, and the unamor-tized net premiums on intragovernmen-tal holdings, plus unamortized netdiscounts on public issues of Treasurynotes and bonds (other than zero-cou-pon bonds).

Note 10. Federal employeeand veteran benefits payable

The Federal Government offers itsemployees, both civilian and military,retirement benefits, life and health insur-ance, and other benefits.

The Federal Government adminis-ters more than 40 pension plans. Thelargest are administered by OPM for ci-vilian employees and by the Depart-ment of Defense (DOD) for militarypersonnel. The Federal Governmenthas both defined benefit and definedcontribution pension plans, althoughthe largest are defined benefit plans.

Civilian employees

Pensions

The largest civilian pension plan isadministered by OPM and covers ap-proximately 90 percent of all Federal

Change in actuarial accrued pension liability and components of related expense

(In billions of dollars)Civilian

employeesMilitary

1 employees

Actuarial accrued pension liability, as of September 30, 1996 . . . . . . . . . . . . . . . . . . . . . 911.3 625.8

Pension expense:

Normal costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.7 11.1Interest on unfunded liability . . . . . . . . . . . . . . . . . . . . 63.0 40.1

Actuarial gains (-)/losses . . . . . . . . . . . . . . . . . . . . . . . -10.5 -5.0

Total pension expense. . . . . . . . . . . . . . . . . . . . . . . . 72.2 46.2

Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41.3 -30.3

Actuarial accrued pension liability, as of September 30, 1997 . . . . . . . . . . . . . . . . . . 942.2 641.7

1 OPM only.

Federal employee and veteran benefits payable as of September 30


Civilian employees:

Pensions . . . . . . . . . . . . . . . . 977.2

Health benefits . . . . . . . . . . . 158.9

Other benefits . . . . . . . . . . . 29.2

Total Federal employeebenefits. . . . . . . . . . . . . . . 1,165.3

Military employees:

Pensions . . . . . . . . . . . . . . . . 641.7

Compensation and burial benefits . . . . . . . . . . 197.4

Health benefits . . . . . . . . . . . 218.0

Other benefits . . . . . . . . . . . 21.3

Total military benefits . . . . 1,078.4

Total Federal employeeand veteran benefits payable . . . . . 2,243.7

Significant assumptions used in determining the pension liabilityand the related expense include:

Civilianemployees

Militaryemployees

Rate of interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.00% 6.50%Rate of inflation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.00% 3.50%Projected salary increases. . . . . . . . . . . . . . . . . . . . 4.25% 4.00%



civilian employees. It includes two com-ponents of defined benefits: the CivilService Retirement System (CSRS) andthe Federal Employ ee’s Retirement Sys-tem (FERS). The basic benefit compo-nents of CSRS and FERS are financedand operated through the Civil ServiceRetirement and Disability Fund(CSRDF). CSRDF monies are generatedprimarily from employees, agency con-tributions, payments from the generalfund and interest on investments in Fed-eral debt securities (see Note 16, underCSRDF, for further discussion).

The Federal Retirement Thrift In-vestment Board is an independent Gov-ernment agency that operates the ThriftSavings Plan. The fund’s assets areowned by the Federal employees and re-tirees covered by CSRS and FERS. Forthis reason, the fund is excluded fromthe consolidated financial statementsand the fund’s holdings of Federal debt

are considered part of the Federal debtheld by the public rather than Federaldebt held by the Government. FERSemployees may contribute up to 10 per-cent of their base pay to the plan,which is matched by the Governmentup to 5 percent. CSRS employ ees maycontribute up to 5 percent of their basepay with no Government match.

The Thrift Savings Plan’s total in-vestment, as of September 30, 1997, was$51.5 billion. Investments include U.S.Government non-marketable securities($24.8 billion), which are included in to-tal Federal debt securities held by thepublic in the balance sheet.

Health benefits

Civilian retirees pay the same insur-ance premium as active employees un-der the Federal Employee HealthBenefits Program (FEHBP). These pre-miums cover only a portion of the

Significant assumptions used in determining the post-retirement healthbenefits liability and the related expense include:

Civilianemployees

Militaryemployees

Rate of interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.00% 6.75%Rate of health care inflation . . . . . . . . . . . . . . . . . . 7.00% 2.50-8.00%

Change in accrued post-retirement health benefits liability and components of related expense

(In billions of dollars)Civilian

employeesMilitary

employees

Actuarial post-retirement health benefits liability, as of September 30, 1996 . . . . . . . . . . 148.6 210.3

Post-retirement health benefits expense:

Normal costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 5.2

Interest on unfunded liability . . . . . . . . . . . . . . . . 10.5 14.3

Actuarial gains (-)/losses . . . . . . . . . . . . . . . . . . - -4.9

Total post-retirement health benefit expense . . . . . . . . . . . . . . . . . . 16.0 14.6

Claims paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5.7 -6.9

Actuarial accrued post-retirement health benefits liability, as of September 30,1997 . . . . . . . . . . . . . . . 158.9 218.0



costs. Although the Government contri-bution for the premiums of active em-ployees in FEHBP is paid by theemploying agency , the Governmentcontribution for civilian retirees isfunded through appropriations.

Other benefits

The Federal Employees Group LifeInsurance program is largely funded byemployee contributions. The employeeslife insurance program finances pay-ments to private insurance companiesfor Federal employee’s group life insur-ance and is administered by OPM.

Military employees(including veterans)

Pensions

The DOD Military RetirementTrust Fund accumulates funds in orderto finance liabilities of DOD under mili-tary retirement and survivor benefit pro-grams. The fund provides retirementbenefits for military personnel and theirsurvivors.

The military retirement system ap-plies to the Army , Navy, Marine Corpsand Air Force. The system is a funded,non-contributory , defined benefit plan.It includes non-disability retired pay , dis-ability retired pay, retired pay for re-serve service and survivor annuityprograms.

Compensation and burial benefits

Veterans compensation is pay able asa disability benefit or a survivor’s bene-fit. Entitlement to compensation de-pends on the veteran’s disabilitiesincurred in, or aggravated during activemilitary service, death while on duty or

death resulting from service connecteddisabilities, if not in active duty.

Burial benefits include a burial andplot or interment allowance payable fora veteran who, at the time of death, wasentitled to receive compensation, pen-sion or whose death occurred in a VAfacility.

Health benefits

Military retirees and their depend-ents are entitled to health care in mili-tary medical facilities if the facility canprovide the needed care. Until theyreach age 65, military retirees and theirdependents also are entitled to healthcare financed by the Civilian Healthand Medical Programs of the Uni-formed Services (CHAMPUS). No pre-mium is charged for CHAMPUSfinanced care, but there are deductibleand copayment requirements. Afterthey reach 65 years of age, military retir-ees are entitled to Medicare.

The costs for military retiree healthcare include costs of buildings, equip-ment, education and training, staffing,operations and maintenance of militarymedical treatment facilities. They alsoconsist of claims paid by CHAMPUSand the administration of the program.

Other benefits

VA insurance includes the follow-ing programs: United States Govern-ment Life Insurance, National ServiceLife Insurance, Veterans Insurance andIndemnities, Veterans Special Life Insur-ance, Veterans Reopened Insurance,Service Disabled Veterans Insuranceand Servicemen’s Group Life Insurance.

The National Service Life Insurancewas established in 1940 for the WorldWar II servicemen and veterans and re-mained open until 1951. Of the original22 million policies issued, approxi-mately 2 million remain. Under thisprogram the maximum coverage is lim-ited to $10,000.

Veterans Special Life Insurance wasestablished in 1951 for servicemen whoserved in the Korean War and the post-Korean period through 1957. Approxi-mately 800,000 policies were issued ofwhich, 252,300 remain.

Veterans compensation andburial benefits payable as of September 30


Veterans. . . . . . . . . . . . . . . . 158.5

Survivors . . . . . . . . . . . . . . . . 37.1

Burial benefits . . . . . . . . . . . 1.8

Total veteranscompensation and burial benefits payable . . . . . . . . . . . . . . . 197.4



Note 11 . Environmentalliabilities

During World War II and the ColdWar, the United States developed a mas-sive industrial complex to research, pro-duce and test nuclear weapons. Thenuclear weapons complex included nu-clear reactors, chemical processing build-ings, metal machining plants,laboratories and maintenance facilities.The resulting environmental liabilitiesare the costs associated with removing,containing and/or disposing of hazard-ous waste from the properties. “Envi-ronmental liabilities,” as used in thisreport, applies only to cleanup costsfrom Federal operations known to re-sult in hazardous waste, which the Fed-eral Government is required by Federal,State or local statutes, and/or regula-tions that have been approved as of thebalance sheet date regardless of the effec-tive date of cleanup.

The DOD is responsible for cleaningup and disposing of hazardous materialsin facilities it operates or has operatedand has recorded a $27.8 billion liabilityfor these costs. DOD has not currentlyrecorded any liability for national de-fense assets (primarily disposal ofweapon systems like aircraft, ships andsubmarines) and ammunitions (primar-ily hazardous materials).

“Environmental management andlegacy wastes” include costs for environ-

mental restoration, nuclear material andfacility stabilization, and waste treat-ment, storage and disposal activities ateach installation. It also includes costsfor related activities such as landlord re-sponsibilities, program managementand legally prescribed grants for partici-pation and oversight by Native Ameri-can tribes, and regulatory agencies.“Active facilities” represent anticipatedremediation costs for those facilitiesthat are conducting ongoing operationsbut will ultimately require stabilization,deactivation and decommissioning.

Projects with no current feasibilityremediation approach are excludedfrom the estimate. Significant projectsnot included are:

• Nuclear explosion test areas (such asthe Nevada test site).

• Large surface water bodies (such asthe Clinch and Columbia rivers).

• Most ground water (even with treat-ment, future use will be restricted).

• Some special nuclear material (suchas uranium hexafluoride).

Note 12. Benefits dueand payable

Benefits due and payable as of September 30


Federal Old-Age and Survivors Insurance . . . . . 28.1

Federal Hospital Insurance (Medicare, Part A) . . . . . 16.9

Grants to States for Medicaid . . . . . . . . . . 14.1

Federal Supplemental Medical Insurance (Medicare, Part B). . . . . . 10.5

Federal Disability Insurance . . . . . . . . . . . . . 6.2

Other benefits due and payable . . . . . . 1.9

Total benefits due and payable. . . . . 77.7

Environmental liabilities as of September 30


Environmentalmanagement and legacy waste . . . . . . . . . . 141.3

Defense: clean-up costs . . 27.8

Active facilities . . . . . . . . . . 20.7

Pipeline facilities . . . . . . . . . 8.8

High-level waste . . . . . . . . . 6.7

Other environmental liabilities . . . . . . . . . . . . . . . 6.4

Total environmental liabilities . . . . . . . . . . . . . . 211.7



These amounts are benefits owed tothe recipients or medical service provid-ers of the above programs as of the fis-cal yearend but not yet paid. For adescription of the programs, see the sup-plemental information in Section 4, un-der Social Security and Medicare.

“Other Benefits due and payable” in-clude unemployment benefits, BlackLung benefits and Railroad Retirementpension benefits.

Note 13. Other liabilities

“Deferred revenue” is revenue re-ceived but not yet earned. “Contingentliabilities” are the estimated value ofprobable losses. “Exchange Stabiliza-tion Fund” includes SDR certificates is-sued to the Federal Reserve banks andallocations from the International Mone-tary Fund. “Insurance program" liabili-ties include bank deposit insurance,guarantees of pension benefits, life insur-ance, medical insurance and insuranceagainst damage to property (home,crops and airplanes) caused by perilssuch as flooding and other natural disas-ters, war-risk and insolvency. “Accruedwages and benefits” are the estimated li-ability for salaries and wages of civilianand commissioned officers that havebeen earned but are unpaid, andamounts of funded annual leave and

other employee benefits that have beenearned but are unpaid. “Advances fromothers” are amounts received for goodsand services to be furnished. “Other” li-abilities include gold certificates issuedto the Federal Reserve banks, other actu-arial liabilities, deposit funds and sus-pense accounts.

Note 14. Commitmentsand contingencies

The Federal Government’s commit-ments and contingencies include long-term leases, loan and credit guarantees,and deposit and pension insurance.They do not include commitments forlong-term procurements.

FASAB standards require disclosureof contingencies when a loss is consid-ered to be more likely than not, but lessthan probable, and when the amount ofpossible loss can be reasonably esti-mated, or when the loss is probable butthe amount is not measurable.

For the fiscal year ended September30, 1997, the amount of possible losscontingencies was not available for con-solidation. Therefore, the amountsstated here represent the maximumtheoretical risk exposure. However, it isnot likely that the maximum loss willbe incurred.

In fiscal 1998, contingencies will bereported using the basis prescribed byFASAB Statement No. 5.

The U.S. Government is also subjectto other contingencies, including litiga-tion, that arise in the normal course ofoperations. Although there can be no as-surance as to the ultimate disposition ofthese matters, it is management’sopinion, based upon informationcurrently available, that the expectedoutcome of these matters, individuallyor in the aggregate, except for the fol-lowing litigation, will not have a mate-rial adverse affect on the consolidatedfinancial statements.

The U.S. Court of Federal Claimshas not yet imposed any damage awardsagainst the United States in any of the125 supervisory goodwill cases. How-ever, while it is likely that the UnitedStates will have to pay some amount ofdamages on the claims, the ultimatecosts cannot be reasonably estimated atthis time.

Other liabilities as of September 30


Deferred revenue. . . . . . . . 27.2

Contingent liabilities. . . . . . 16.9

Exchange Stabilization Fund . . . . . . . 15.9

Insurance programs . . . . . . 14.6

Accrued wages and benefits . . . . . . . . . . 12.8

Advances from others . . . . 6.8

Other . . . . . . . . . . . . . . . . . . 74.6

Total other liabilities . . . . . 168.8



Commitments and contingencies as of September 30


Commitments

Long-term leases:

General Services Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6U.S. Postal Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9

Other long-term leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9

Total commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.4

Contingencies

Insurance:

FDIC bank insurance fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,028.0FDIC savings association insurance fund . . . . . . . . . . . . . . . . . . . . . 684.3Department of Veteran Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.0National Credit Union Administration . . . . . . . . . . . . . . . . . . . . . . . . 2.8Department of Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0

Other insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.7

Total insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,773.8

Government loan and credit guarantees:

Department of Housing and Urban Development . . . . . . . . . . . . . 447.1Department of Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.0Department of Veteran Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69.4Small Business Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.2Export-Import Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.1Department of Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.5

Other Government loan and credit guarantees . . . . . . . . . . . . . . . 32.1

Total Government loan and credit guarantees . . . . . . . . . . . . . . 712.4

Unadjudicated claims:

Department of Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80.9Department of Health and Human Services . . . . . . . . . . . . . . . . . . 0.9

Other unadjudicated claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.9

Total unadjudicated claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.7

Other contingencies:

Department of Housing and Urban Development . . . . . . . . . . . . . 8.3

Other contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129.5

Total other contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137.8

Total contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,731.7

Total commitments and contingencies . . . . . . . . . . . . . . . . . . . 3,753.1



Note 15. Unreconciledtransactions affectingthe change in net position

The reconciliation of the “change innet position” requires that the differ-ence between ending and beginning netposition equals the excess of cost overrevenues plus or minus prior period ad-justments. The unreconciled transac-tions needed to bring the change in netposition into balance net to $12.4 bil-lion. The three primary factors affectingthis out-of-balance situation are (1)agency misclassification of intragovern-mental transactions; (2) changes in valu-ation of balance sheet assets andliabilities, which were not identified byagencies as prior period adjustments;and (3) timing differences and errors inthe reporting of transactions.

The identification and reporting ofthese unreconciled transactions are a pri-ority project of the financial commu-nity within the Federal Government.

Note 16. Dedicated collections

The term “trust fund,” as used inthis report and in Federal budget ac-counting, is frequently misunderstood.In the private sector, “trust” refers tofunds of one party held by a secondparty (the trustee) in a fiduciary capac-

ity. In the Federal budget, the term“trust fund” means only that the law re-quires the funds be accounted for sepa-rately and used only for specifiedpurposes and that the account was desig-nated as a “trust fund.” A change in lawmay change the future receipts and theterms under which the fund’s resourcesare spent.

The “trust fund assets” represent allsources of receipts and amounts due thetrust fund regardless of source. This in-cludes “related governmental transac-tions,” which are transactions betweentwo different entities within the FederalGovernment (for example, monies re-ceived by one entity of the Governmentfrom another entity of the Govern-ment).

The “intragovernmental assets” arecomprised of investments in Federaldebt securities, related accrued interestand fund balance with Treasury. Theseamounts are eliminated in preparingthese consolidated financial statements.

The “consolidated assets” representonly the amounts due from individualsand other entities outside the U.S. Gov-ernment. This means that all relatedgovernmental transactions are removedto give a view of the U.S. Government’sposition as a whole.

The majority of the funds’ assets areinvested in intragovernmental Federal

Dedicated collections as of September 30

mnn Assets

(In billions of dollars) ReceiptsDisburse-

ments Trust fundLess: Intragov-

ernmentalConsoli-dated

Federal Old Age and SurvivorsInsurance Trust Fund . . . . . . . . . . . 387.5 318.4 577.5 577.5 -

Federal Disability Trust Fund . . . . . . 60.3 46.6 64.6 64.6 - Hospital Insurance

Trust Fund (Medicare, Part A) . . . 128.3 137.7 118.9 118.9 - Supplementary Medical Insurance(Medicare, Part B) . . . . . . . . . . . . . . 81.0 73.5 35.1 35.1 - Unemployment Trust Fund . . . . . . . 32.6 24.4 63.1 63.1 - Hazardous Substance

Superfund . . . . . . . . . . . . . . . . . . . 0.7 1.4 5.6 5.6 - Highway Trust Fund . . . . . . . . . . . . . 25.3 24.5 22.3 22.3 - Airport and Airway Trust Fund . . . . 4.7 5.8 6.5 6.5 - Civil Service Retirement

and Disability Fund . . . . . . . . . . . . 70.4 72.7 430.9 430.6 0.3 Military Retirement Fund. . . . . . . . . 26.2 46.1 143.2 143.2 -



debt securities. These securities will re-quire redemption if a fund’s disburse-ments exceed its receipts. Redeemingthese securities will increase the Govern-ment’s financing needs and require in-creased borrowing from the public.

By law, certain expenses (costs) re-lated to the administration of the abovefunds are not charged to the funds andare financed by other financing sources.

Federal Old Age andSurvivors Insurance Trust Fund

The fund provides assistance and pro-tection against the loss of earnings dueto retirement or death. The assistance isin the form of money payments ormedical care. The Federal Old Age andSurvivors Trust Fund is administeredby the Social Security Administration(SSA).

The Federal Old Age and SurvivorsInsurance Fund is financed primarily bypayroll taxes. The fund also receives ad-ditional income from interest earningson Federal debt securities, Federal agen-cies’ payments for the Social Securitybenefits earned by military and Federalcivilian employees, and Treasury pay-ments for a portion of income taxespaid on Social Security benefits.

Federal Disability Trust Fund

The Federal Disability Trust Fundprovides assistance and protectionagainst the loss of earnings due to awage earner’s disability. The assistanceis in the form of money payments ormedical care. The Federal DisabilityTrust Fund is administered by SSA.

The Federal Disability Trust Fund,like the Federal Old Age and SurvivorsInsurance Trust Fund, is financed pri-marily by payroll taxes. The fund alsoreceives additional income from interestearnings on Federal debt securities, Fed-eral agencies’ payments for the Social Se-curity benefits earned by military andFederal civilian employees, and a por-tion of income taxes paid on Social Secu-rity benefits.

Federal Hospital InsuranceTrust Fund

The Hospital Insurance Trust Fundfinances the Hospital Insurance Pro-gram, which funds the cost of hospitaland related care for individuals age 65

or older who meet certain insuredstatus requirements, and for eligible dis-abled people. The program is adminis-tered by the Department of Health andHuman Services (HHS).

The Hospital Insurance Trust Fund(also known as Medicare, Part A) is fi-nanced primarily by payroll taxes. Italso receives additional income from in-terest earnings on Federal debt securi-ties, Federal agencies’ payments for theSocial Security benefits earned by mili-tary and Federal civilian employ ees, anda portion of income taxes paid on SocialSecurity benefits.

Federal SupplementalMedical Insurance Trust Fund

The Supplemental Medical InsuranceTrust Fund (also known as Medicare,Part B) provides supplementary medicalinsurance for eligible participants tocover medical expenses not covered byMedicare, Part A. The program is ad-ministered by HHS.

The Supplemental Medical InsuranceTrust Fund is funded by appropria-tions, premiums charged to enrolleesand interest earned on investments inFederal debt securities.

Unemployment Trust Fund

The Unemployment Trust Fund pro-tects workers who lose their jobsthrough no fault of their own. Unem-ployment insurance is a unique Fed-eral/State partnership based on Federallaw, which is executed through Statelaw by State officials. The program is ad-ministered by the Department of Labor.

The Unemployment Trust Fund isfunded primarily by taxes on employ-ers. However, it also has income frominterest earned on investments in Fed-eral debt securities and appropriationshave supplemented its income during pe-riods of high and extended unemploy-ment.

Hazardous Substance Superfund

The Hazardous Substance Super-fund was authorized to address publichealth and environmental threats fromspills of hazardous materials and fromsites contaminated with hazardous sub-stances. The fund is administered by theEnvironmental Protection Agency.



The Hazardous Substance Superfundis financed by excise taxes collected onpetroleum and chemicals, environ-mental taxes from all corporations withincome in excess of $2 million and inter-est earned on investments in Federaldebt securities.

Highway Trust Fund

The Highway Trust Fund was estab-lished to promote domestic interstatetransportation, moving people andtransporting goods. The fund providesFederal grants to States for highway con-struction and related transportation pur-poses. The Highway Trust Fund isadministered by the Department ofTransportation.

The Highway Trust Fund is fi-nanced entirely by earmarked taxes ongasoline and other fuels, certain tires, ve-hicle and truck use, and by interestearned on investments in Federal debtsecurities.

Airport and Airway Trust Fund

The Airport and Airway Trust Fundprovides for airport improvement, main-tenance of the facilities and equipment,research and also for a portion of the op-erations. The Airport and Airway TrustFund is administered by the Depart-ment of Transportation.

The Airport and Airway Trust Fundis financed by taxes received from trans-portation of persons and property inthe air, fuel used in non-commercial air-craft, international departure taxes andby interest earned on investments inFederal debt securities.

Civil Service Retirementand Disability Fund

CSRDF covers two Federal civilianretirement sy stems: C SRS, for employ-ees hired before 1984 and FERS, for em-ployees hired after 1983.

CSRDF is financed by Federal civil-ian employees’ contributions, agencies’contributions on behalf of the employ -ees, appropriations and interest earnedon investments in Federal debt securi-ties.

Military Retirement Trust Fund

The Military Retirement Trust Fundprovides retirement benefits for Army,Navy, Marine Corps and Air Force per-sonnel and their survivors. The fund isfinanced by DOD contributions, appro-

priations and interest earned on invest-ments in Federal debt securities.

Note 17. Fiduciary trust funds

The fiduciary trust funds differ fromother dedicated collections reported inNote 16, in that the Federal Govern-ment holds fiduciary funds on behalf ofsome other entity (for example, individ-ual, tribes and foreign governments).No person or group of persons has a di-rect ownership interest in the moniesheld by the trust funds reported inNote 16.

The U.S. Federal Government has afiduciary responsibility for several de-posit and trust funds. The Departmentof the Interior has responsibility for theassets held in trust on behalf of Ameri-can Indian Tribes and individuals. Thefiduciary funds are held in accounts forapproximately 315 tribes, 317,000 indi-vidual Indian accounts and other funds,including the Alaska Native EscrowFund. The assets held in trust for Na-tive Americans are owned by the trustbeneficiaries and are not Federal assets.Therefore, these amounts are not re-flected in the consolidated balance sheetor statement of net costs.

Fiduciary trust fund balances pre-sented below do not include trust landmanaged by the U.S. Government.

U.S. Government as trustee for Indian fiduciary trust fundsstatement of changes in trust fund balances as of September 30 (unaudited)


Receipts . . . . . . . . . . . . . . . 1.2

Disbursements. . . . . . . . . . . 1.0

Receipts in excess of disbursements . . . . . . . 0.2

Trust fund balances, beginning of year . . . . . . 2.7

Trust fund balances, end of year. . . . . . . . . . . . 2.9



United States Government Consolidated Stewardship Reporting for the year ended September 30, 1997 (Unaudited)

The stewardship reporting sectionof this report provides information oncertain resources entrusted to the Fed-eral Government and certain responsi-bilities assumed by it. These resourcesand responsibilities do not meet the cri-teria for assets and liabilities that are re-quired to be reported in the financialstatements but are important to under-standing the operations and financialcondition of the Federal Government.The section this year includes informa-tion on land not used in general opera-tions and on major social insuranceprograms: Social Security and Medicareparts A and B. The scope of this sec-tion will be expanded in the future.

The information on social insuranceis supplemented by Note 16. Social in-surance is financed through trust funds,and Note 16 provides general informa-tion about the nature of dedicated col-lections and trust funds in the FederalGovernment and specific informationabout the receipts, disbursements andassets of the largest funds with dedi-cated collections.

Stewardship landStewardship land is land owned by

the Federal Government not used in,or held for use in, general governmentservices. Therefore, excluded from stew-ardship lands are lands used as part ofgeneral government operations (e.g.

military bases and the Tennessee ValleyAuthority), and lands administered bythe Bureau of Indian Affairs held intrust on behalf of the Indians.

The majority of stewardship land is“public domain” land — that is, large ar-eas of territory acquired by the nationbetween 1781 and 1867. All areas ofthe nation other than the lands belong-ing to the original 13 colonies and thestate of Texas were acquired as publicdomain. During this time, the FederalGovernment acquired land equal to79.4 percent of the current acreage ofthe United States, spending a total of$85.1 million.

Bureau of Land ManagementThe Bureau of Land Management

(BLM) is responsible for managing a va-riety of land types. BLM subdividestheir management responsibility intofive primary land types: (1) rangeland;(2) forest land; (3) riparian and wet-lands; (4) aquatic areas and (5) otherhabitat and wastelands.

Rangeland is land on which the na-tive vegetation is predominatelygrasses, grass-like plants, forbs, orshrubs suitable for grazing or browsinguse. Rangelands include lands revege-tated either naturally or artificially toprovide a forage cover that is managedlike native vegetation. Rangelands in-

United States Government stewardship land as of September 30(In millions of acres)

Totals

Predominate land useU.S. Forest

ServiceNational

Park Service

U.S. Fishand Wildlife

Service

Bureau ofLand

Manage-ment

Total bytype of use

Percent oftotal

Bureau of LandManagement land. . 259.0 259.0 41%

National wildlife refuge. . . . . . . . . . . . . 67.4 67.4 11%

National parks . . . . . . . 49.4 49.4 8%National forest . . . . . . . 153.3 153.3 25%National grassland . . . 3.8 3.8 1%Wilderness area . . . . . . 34.7 28.0 20.7 5.0 88.4 14%

Total acres . . . . . . . . . 191.8 77.4 88.1 264.0 621.3 100%

Stewardship Reporting 61


clude natural grasslands, savannahs,shrublands, most deserts, tundra, al-pine communities, coastal marshes andwet meadows. Rangelands total 165million acres, including 5 million acresin the Alaska Reindeer Range.

Forest land encompasses approxi-mately 11 million acres. About 7 mil-lion acres are in Alaska, with 4million more in the 11 western states.These forested lands are of great vari-ety and include black and whitespruce in Alaska; aspen, lodgepolepine, ponderosa pine, interior Douglasfir, and associated species of the Inter-mountain West; the pinyon-juniperwoodlands of the Great Basin andSouthwest; and the Douglas fir, hem-lock, and cedar forests of western Ore-gon and northern California.

Riparian areas are lands adjacent tocreeks, streams, lakes, and rivers total-ing 183,000 miles in length and 7 mil-lion acres in area. These areas,containing scarce water and vegetationin the otherwise arid western UnitedStates, are important to fish and wild-life species, as well as to livestock.Since they filter the water flowingthrough them, riparian-wetland areascan effect the health of the entire wa-tersheds. Wetlands are areas inundatedor saturated by surface or groundwater at a frequency and duration suffi-cient to support vegetation that is typi-cally adapted for life in saturated soil.Wetlands include bogs, marshes, shal-lows, muskegs, wet meadows, estuariesand riparian areas. Wetlands total 16million acres.

Aquatic areas are areas of waterflow or standing water that includeabout 4 million acres of lakes and reser-voirs. These waters contain a wide vari-ety of aquatic species that range fromrare resident species, such as the desertpupfish to endangered and threatenedanadromous species, such as steelheadand chinook salmon.

Wastelands are areas that generallydo not provide forage in sufficientamounts to sustain wildlife or grazinganimals. This land category includessuch areas as mountain tops, glaciers,barren mountains, sand dunes, playas,hot, dry deserts and other similar areastotaling 20 million acres.

U.S. Forest ServiceThe U.S. Forest Service has the re-

sponsibility for the management of

191.8 million acres of Federally ownedlands for the sustained use of outdoorrecreation, range, timber, watershed,and the management of wildlife and fish.

Forest land contains 155 named na-tional forests. Within the national for-ests, livestock grazing for cattle, horses,sheep and goats was permitted on over103.4 million acres of rangeland. TheForest Service sold 4.0 billion board-feetof lumber and supervised the harvest of3.3 billion board-feet of lumber in thefiscal 1997 and reforested 0.3 millionacres primarily with genetically im-proved seedlings.

Wilderness land contains 34.7 mil-lion acres in 44 states, Puerto Rico andthe U.S. Virgin Islands, and is served by33,000 miles of trails.

The Forest Service also manages 20named grasslands on 3.8 million acresand about 4,348 miles of the wild andscenic river sy stem.

U.S. Fish and Wildlife ServiceThe U.S. Fish and Wildlife Service

has the responsibility for the manage-ment of 88.1 million acres of Federallyowned lands held primarily for wildlifeconservation. It has four goals: (1) topreserve, restore, and enhance in theirnatural ecosystems all species of animalsand plants that are endangered or threat-ened with becoming endangered; (2) toperpetuate the migratory bird resource;(3) to preserve a natural diversity andabundance of fauna and flora and (4) toprovide and understanding and apprecia-tion of fish and wildlife ecology, and toprovide refuge visitors a safe, whole-some and enjoyable recreational experi-ence oriented toward wildlife.

The U.S. Fish and Wildlife Servicesubdivides its management responsibil-ity into the following categories:

• National wildlife refuges–512 sites on67.4 million acres and

• Wilderness areas–362 sites on 20.7 mil-lion acres.The service also manages eight wild

and scenic rivers totaling 1,390 miles inlength.

National Park ServiceThe National Park Service has the re-

sponsibility for the management of 77.4million acres of Federally owned lands,including 13.1 million acres designatedas wilderness, the purpose of which isto conserve the scenery, nature, historicobjects and the wildlife therein for the

62 Stewardship Reporting


enjoyment of the public and future gen-erations.

Other types of park areas include:national rivers, parkways, national lake-shores, historic parks, scenic trails, wildand scenic rivers, military parks, re-serves, battlefields and other parks.

Stewardship responsibilities

Social SecurityThe Social Security Act was enacted

in 1935 and included, among other ele-ments, programs providing benefits forretirement.

Two trust funds have been estab-lished by law to account for the OASIand the DI programs. OASI pays retire-ment and survivors benefits and DIpay s benefits after a worker becomesdisabled.

Revenue to OASDI consists of taxeson earnings that are paid by employ-ees, their employ ers and the self-em-ployed. OASDI also receives revenuefrom the taxation of part of Social Secu-rity benefits. Revenues that are notneeded to pay current benefits or ad-ministrative expenses are invested inspecial issue U.S. Government securi-ties guaranteed as to both principal andinterest and backed by the full faithand credit of the U.S. Government.

The Board of Trustees of the OASIand DI Trust Funds provides the Presi-dent and the Congress with short-range(10 year) and long-range (75-year) actu-arial estimates of each trust fund in itsannual report. Because of the inherentuncertainty in estimates for as long as75 years into the future, SSA Trusteesuse three alternative sets of economicand demographic assumptions to showa range of possibilities. Assumptionsare made about many economic, demo-graphic, and programmatic factors, in-cluding gross domestic product,earnings, the Consumer Price Index, un-employment, fertility, immigration,mortality, and disability incidents andtermination. The assumptions used inthe table below, generally r eferred to asthe intermediate assumption, reflect thebest estimate of expected future experi-ence.

The present values of actuarial esti-mates have been computed as of the be-ginning of the valuation period,September 30, 1997. The expendituresconsist of the sum of the present valueof all estimated payments during the 75-year valuation period, and the contribu-tions consist of the sum of the presentvalue of all estimated non-interest in-come during the period. The estimateshave been prepared on the basis of thefinancing method regarded by both theCongress and the trustees of the trustfunds as the appropriate one to use forsocial insurance programs—namely thatfuture workers will be covered by theprogram as they enter the labor force.

Under current legislation and usingintermediate assumptions, the DI trustfund and the OASI trust fund are pro-jected to be exhausted in 2015 and 2031respectively. Combined OASDI expen-ditures will exceed current tax incomebeginning in 2012, and they will exceedtotal current income (including currentinterest income) for calendar y ears

Summary of acreage(In millions of acres)

Type of park area AcreageNational parks . . . . . . . 49.4National preserves . . . 21.4National recreation

areas . . . . . . . . . . . . . 3.3National

monuments. . . . . . . . 1.7National seashores . . . 0.5Other park areas. . . . . 1.1

Total acres. . . . . . . . . 77.4

Social Security present value (PV) actuarial estimates for theperiod of 75 years into the future, beginning September 30, 1997(In trillions of dollars)

OASI DI OASDI

PV of actuarial contributions to the year 2072. . . . 15.3 2.5 17.8PV of actuarial expenditures to the year 2072 . . . 18.2 3.1 21.3

PV of future resources needed . . . . . . . . . . . . . . . . 2.9 0.6 3.5

Net assets of Social Security (as of September 30, 1997) . . . . . . . . . . . . . . . . . . 0.6 0.1 0.7

Stewardship Reporting 63


2019 and later. Thus, current tax in-come plus a portion of annual interestincome will be needed to meet expen-ditures for the years 2012 through2018. Thereafter, in addition to cur-rent tax income and current interest in-come, a portion of the principal (i.e.,combined OASDI assets) will beneeded each year until the trust fundassets are totally exhausted in 2029. Atthat point, current tax income will besufficient to pay approximately 75 per-cent of the benefits due.

Medicare Revenue to Federal Hospital Insur-

ance Trust Fund (HI–Medicare, PartA) consists of taxes on earnings thatare paid by employees, their employ-ers, and the self-employed. HI also re-ceives revenue from part of thetaxation of Social Security benefits andfrom interest on its investments. Reve-nues that are not needed to pay cur-rent benefits or administrativeexpenses are invested in special issueU.S. Government securities guaran-teed as to both principal and interestand backed by the full faith and creditof the U.S. Government.

HI (Medicare, Part A) has an actuar-ial deficit of $1,845.3 billion as com-puted 25 y ears (to calendar year 2022)into the future. It includes the bookvalue of assets as of September 30,1997, and the present value of variousprogram income items expected to bereceived through the year 2022, less:(1) the present value of outlaysthrough the year 2022, (2) claims in-

curred to October 1, 1997, but unpaidas of that date, and (3) any administra-tive expenses related to those claims.Under current legislation, incorporatingthe changes from the Balanced BudgetAct, and using intermediate assump-tions from the 1997 trustees report,Medicare, Part A is projected to be ex-hausted in 2010.

The Federal Supplementary MedicalInsurance Trust Fund (SMI—Medicare,Part B) benefits and administrative ex-penses are financed by monthly premi-ums paid by Medicare beneficiaries andadditional contributions by the FederalGovernment. The Omnibus Budget Rec-onciliation Act of 1990 set specificmonthly premium levels for five calen-dar y ears beginning in 1991. Themonthly premium in calendar year 1997covered 25 percent of the SMI pro-gram’s estimated 1997 cost.

The Federal Supplementary MedicalInsurance Trust Fund (SMI—Medicare,Part B) has a surplus of $29,237 billionwhich represents the amount of the esti-mated book value of the trust fund as-sets as of September 30, 1997, lessunpaid benefits and related administra-tive expenses.

The Federal Accounting StandardsAdvisory Board is considering addingthree other social insurance programsfor presentation in future consolidatedstatements as stewardship responsibili-ties: the Railroad Retirement TrustFund, the Black Lung Trust Fund andthe Unemployment Insurance Program.

Medicare, Part A, present value estimates for the period of 25 years into the future, beginning September 30(In billions of dollars)

PV of actuarial contributions to the year 2022 . . . . . . . . . . . . . . . 2,432.8PV of actuarial expenditures to the year 2022 . . . . . . . . . . . . . . . 4,278.1PV of future resources needed. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,845.3

Assets in Medicare Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118.9

Medicare Part B, estimates as of September 30(In billions of dollars)

Total trust fund assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.1Total unpaid benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.0

Excess of Trust Fund assets over unpaid benefits . . . . . . . . . . . . 29.1

64 Stewardship Reporting


United States Government Consolidated Supplemental Information for the year ended September 30, 1997

Reconciliation of the changes in net position to the deficit on the budgetary basis for the year ended September 30(Unaudited)(In billions of dollars)

Change in net position . . . . . . . . . . . . . . . . . . . . . . . . . . -2.6Timing and other differences in the recognition or

measurement of revenue:

Earned revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -102.0Non-exchange revenue. . . . . . . . . . . . . . . . . . . . . . . . . -3.2Other earned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . -11.6

Timing and other differences in the recognition ormeasurement of cost:

Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18.6Human resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34.3Physical resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.3Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1Other functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.4

Non-recurring items:

Unreconciled transactions affecting the change in net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

-12.4

Deficit (-) for the year on the budgetary basis . . . . . . -21.9

Supplemental Table and Appendix 65


Appendix: List of significantU.S. Government entitiesincluded and entitiesexcluded from theseConsolidated FinancialStatements

These financial statements includethe executive, legislative and judicialbranches of the Federal Government.Excluded from this consolidated finan-cial statement are privately ownedGovernment sponsored enterprisessuch as the Federal Home Loan Banksand the Federal National Mortgage As-sociation. The Federal Reserve Systemis also excluded because organizationsand functions pertaining to monetarypolicy are traditionally separate fromand independent of the other centralGovernment organizations and func-tions.

Significant entities included in thisconsolidation

Executive Office of the PresidentOffice of Management and BudgetDepartment of AgricultureDepartment of CommerceDepartment of DefenseDepartment of EducationDepartment of EnergyDepartment of Health and

Human ServicesDepartment of Housing and

Urban DevelopmentDepartment of the InteriorDepartment of JusticeDepartment of LaborDepartment of StateDepartment of the Air ForceDepartment of the ArmyDepartment of the NavyDepartment of the TreasuryDepartment of TransportationDepartment of Veterans AffairsU.S. Postal ServiceAgency for International DevelopmentCentral Intelligence AgencyCommodity Credit Corporation

Commodity Futures TradingCommission

Corporation for Public BroadcastingEnvironmental Protection AgencyExport-Import Bank of the United StatesFarm Credit AdministrationFederal Communications CommissionFederal Deposit Insurance CorporationFederal Emergency Management AgencyFederal Trade CommissionGeneral Services AdministrationNational Aeronautics and

Space AdministrationNational Archives and

Records AdministrationNational Credit Union AdministrationNational Science FoundationNational Transportation Safety BoardOffice of Personnel ManagementPension Benefits Guaranty CorporationSecurities and Exchange CommissionSmall Business AdministrationSmithsonian InstitutionSocial Security AdministrationTennessee Valley AuthorityU.S. Nuclear Regulatory CommissionU.S. Army Corps of EngineersU.S. Information AgencyOther boards and commissionsLibrary of CongressGovernment Printing OfficeGeneral Accounting OfficeCongressional Budget OfficeOther legislative and judicial (cash

transactions only)

Significant entities excluded fromthis consolidation

Federal Reserve BanksBoard of Governors

of the Federal Reserve System Farm Credit SystemThrift Savings PlanFederal Home Loan BanksFinancing CorporationFreddie MacFannie MaeSallie MaeResolution Funding CorporationArmy and Air Force Exchange ServiceNavy Exchange Service CommandMarine Corps Exchange

66 Supplemental Table and Appendix


consolidated financial statements 1997 · management’s discussion and analysis 2 general...

Documents